The Canadian dollar weakened to its lowest in more than five weeks against the greenback on Tuesday as investors bet that recent data showing slower domestic growth would leave the Bank of Canada less upbeat at Wednesday’s interest rate decision.
At 3:39 p.m., the Canadian dollar was trading 0.3 per cent lower at 1.3342 to the greenback, or 74.95 U.S. cents.
The currency, which touched its weakest level since Jan. 25 at 1.3360, has sunk 1.3 per cent since Friday, when data showed that Canada’s economy grew in the fourth quarter at the slowest pace in 2-1/2 years.
“People have given a real hard look at the details behind those numbers as well and what that means for the pieces that (Bank of Canada Governor Stephen) Poloz is looking to,” said Eric Theoret, a currency strategist at Scotiabank.
“The business investment disappointment is the biggest take-away and it has been one of the core components of their (Bank of Canada) optimistic narrative. With that getting thrown out the window it does look a bit more challenging to at least maintain that view that they have been communicating.”
The Bank of Canada, which has raised interest rates 125 basis points since July 2017, is widely expected to leave its benchmark rate on hold on Wednesday at 1.75 per cent.
The central bank’s estimate of the neutral interest rate is too high for Canada’s debt-laden economy, bond investors say, and a failure to lower the estimate when it is due for an annual review in April could hurt its use as a signpost for monetary policy.
The decline for the loonie came as China cancelled major Canadian agribusiness Richardson International Ltd’s registration to ship canola to China. A lasting block on Richardson’s canola exports would be a headache for Canada’s biggest grain handler and could hurt the Canadian economy.
The price of oil, one of Canada’s major exports, was little changed as the market wavered on expectations that the United States and China would reach a trade agreement as early as this month while awaiting U.S. government crude inventory data. U.S. crude oil futures settled 3 cents lower at $56.56 a barrel.
Canadian government bond prices were mixed across the yield curve, with the two-year down 0.5 cent to yield 1.749 per cent and the 10-year rising 3 cents to yield 1.892 per cent.