The Canadian dollar rallied, snapping a record losing streak, as the nation's central bank kept interest rates unchanged in the face of sinking oil prices.
The loonie rose from the cheapest level since 2003 as the Bank of Canada held its benchmark at 0.5 per cent and said stronger U.S. demand, a weaker currency and last year's rate cuts are leading the economy out of an oil slump.
Before the decision, traders had assigned better than a 50 per cent chance of a reduction, according to data compiled by Bloomberg. Canadian two-year notes fell as the central bank held pat, pushing yields up from record lows and trimming the advantage of holding similar-maturity Treasuries to the least in a month.
"It provides a bit of a window here for a relief rally in the Canadian dollar," Shaun Osborne, chief foreign-exchange strategist for Bank of Nova Scotia, said from Toronto. "It suggests the bank thinks there's enough accommodation in the system, or coming through the system, to get the economy back to where it thinks it should be."
Wednesday Rebound The loonie, as the Canadian dollar is known for the image of the aquatic bird on the $1 coin, gained 0.7 per cent to $1.4476 per U.S. dollar at 3:30 p.m. in Toronto. One Canadian dollar buys about 69 U.S. cents. The loonie reached the cheapest since April 2003 on Wednesday before the rate announcement.
The yield on Canada's benchmark two-year bond rose about 10 basis points, or 0.1 percentage point, to 0.4 per cent, after reaching a record low of 0.25 per cent. The extra yield investors get for owning two-year Treasuries sank to 44 basis points, the least since mid-December.
Tuesday marked the loonie's 13th straight daily decline, the longest losing streak since the country ended its currency's peg to the greenback and let it trade freely in 1971.
Prices for crude oil, until last year Canada's largest export, are down more than 25 per cent this year on signs that a glut of global supply won't ease any time soon while demand may stay muted as worldwide economic growth slows.
The Bank of Canada cut interest rates twice last year, saying the economy needed the help as it transitioned to non– commodity exports from oil as its main driver. A three-year slide in the loonie has helped, though the country's manufacturing capacity still remains below its heyday as it faces stiffer competition from the likes of Mexico and China.
"The protracted process of reorientation towards non– resource activity is underway, helped by stronger U.S. demand, the lower Canadian dollar, and accommodative monetary and financial conditions," policy makers led by Governor Stephen Poloz said in a statement.