The Canadian dollar extended its losses, falling to a near seven-week low against its U.S. counterpart on Wednesday, as oil prices dropped and rising trade tensions worried investors.
The escalating U.S.-China trade war is adding to economic headwinds and hurting business sentiment.
The price of oil, one of Canada’s major exports, tumbled more than 4 per cent, extending recent heavy losses following a surprise build in U.S. crude stockpiles and fears that demand will shrink due to Washington’s trade war with Beijing.
“A perfect storm is definitely what we are seeing in the Canadian dollar right now where we are receiving shocks from falling oil prices, rising global trade tensions and financial turmoil, all at the same time.” said Karl Schamotta, director of global markets strategy at Cambridge Global Payments.
At 3:36 p.m. (1936 GMT), the Canadian dollar was trading 0.3 per cent lower at 1.3312 to the greenback, or 75.12 U.S. cents. The currency hit its lowest intraday level since June 19 at 1.3344.
The downward move of the loonie came despite a pickup in the pace of purchasing activity in Canada in July, according to Ivey Purchasing Managers Index (PMI) data. The seasonally adjusted index rose to 54.2 from 52.4 the previous month, surpassing analysts’ expectations for 53.0.
Chances for the Bank of Canada to cut interest rates by at least 25 basis points this year have climbed to almost 100 per cent from about 40 per cent after the release of data last week showing the economy strengthened more than expected in June, the overnight index swap market indicated.
Last month, the Bank of Canada highlighted the risks that trade wars pose to the global economy as it left its benchmark interest rate unchanged at 1.75 per cent.
New Zealand’s dollar fell heavily on Wednesday after its central bank stunned markets with an aggressive interest rate cut, fuelling bets on more global easing.
U.S. crude oil futures settled 4.7 per cent lower at $51.09 a barrel.
Canadian government bond prices were higher across the yield curve in sympathy with U.S. Treasuries. The two-year rose 7 Canadian cents to yield 1.315 per cent and the 10-year was up 49 Canadian cents to yield 1.188 per cent.
The 10-year bond yield hit its lowest intraday level since October 2016 at 1.127 per cent.
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