Loonie sinks on speculation Bank of Canada to adopt easing bias
Tags: Loonie
Canada's dollar weakened to the lowest in more than five years as speculation mounts that the nation's central bank will adopt an easing bias when it meets tomorrow.
The currency dropped as much as 1.4 percent, the most since Jan. 2, the day before the Bank of Canada releases its interest rate outlook updating quarterly inflation and growth projections to factor in cheaper crude oil. It fell versus all its major peers. Charles St-Arnaud, senior economist at Nomura Securities International Inc., said the slump in crude will prompt the central bank to lower its growth forecast by 0.5 percent.
"A lot of investors may not have positioned for tomorrow's Bank of Canada" meeting, St-Arnaud said by phone from London. "We expect the bank to be quite dovish tomorrow. We know they have to incorporate the lower price of oil in their analysis."
The loonie, as the currency is nicknamed for the image of the aquatic bird on the $1 coin, depreciated 1.2 percent to $1.2084 per US dollar at 12:32 p.m. in Toronto. It touched $1.2112, the weakest level since April 2009. Nomura forecasts it will reach $1.25 by the middle of the year. One Canadian dollar purchases 82.75 US cents.
Crude oil, Canada's biggest export, is trading below $50 a barrel US, from $107.73 in June. The central bank's October forecast of growth of 2.4 percent this year was underpinned by an assumption U.S. benchmark crude would trade at an average of $85 a barrel.
CRUDE FACTOR
"They take a spot rate and incorporate that into their analysis," said St-Arnaud, who worked as a Bank of Canada economist for four years until 2005. "They might incorporate a spot rate at less than $50 a barrel -- and that implies a much more dovish outlook without any recovery in oil prices."
The oil slump means it may take longer than expected to return the world's 11th-largest economy to full potential, Deputy Governor Tim Lane said in a Jan. 13 speech. Oil extraction accounts for about 3 percent of Canada's gross domestic product and crude oil about 14 percent of exports, Lane said.
The central bank hasn't raised its benchmark interest rate since September 2010 as it awaits an economic recovery that's in danger of fading. The Bank of Canada has kept its benchmark rate at 1 percent since then, predating Bank of Canada Governor Stephen Poloz taking the job, in the longest stretch since World War II.
Yields on government bonds due in 2045 touched a record low of 2.04 percent today, after dropping five basis points.
The currency dropped as much as 1.4 percent, the most since Jan. 2, the day before the Bank of Canada releases its interest rate outlook updating quarterly inflation and growth projections to factor in cheaper crude oil. It fell versus all its major peers. Charles St-Arnaud, senior economist at Nomura Securities International Inc., said the slump in crude will prompt the central bank to lower its growth forecast by 0.5 percent.
"A lot of investors may not have positioned for tomorrow's Bank of Canada" meeting, St-Arnaud said by phone from London. "We expect the bank to be quite dovish tomorrow. We know they have to incorporate the lower price of oil in their analysis."
The loonie, as the currency is nicknamed for the image of the aquatic bird on the $1 coin, depreciated 1.2 percent to $1.2084 per US dollar at 12:32 p.m. in Toronto. It touched $1.2112, the weakest level since April 2009. Nomura forecasts it will reach $1.25 by the middle of the year. One Canadian dollar purchases 82.75 US cents.
Crude oil, Canada's biggest export, is trading below $50 a barrel US, from $107.73 in June. The central bank's October forecast of growth of 2.4 percent this year was underpinned by an assumption U.S. benchmark crude would trade at an average of $85 a barrel.
CRUDE FACTOR
"They take a spot rate and incorporate that into their analysis," said St-Arnaud, who worked as a Bank of Canada economist for four years until 2005. "They might incorporate a spot rate at less than $50 a barrel -- and that implies a much more dovish outlook without any recovery in oil prices."
The oil slump means it may take longer than expected to return the world's 11th-largest economy to full potential, Deputy Governor Tim Lane said in a Jan. 13 speech. Oil extraction accounts for about 3 percent of Canada's gross domestic product and crude oil about 14 percent of exports, Lane said.
The central bank hasn't raised its benchmark interest rate since September 2010 as it awaits an economic recovery that's in danger of fading. The Bank of Canada has kept its benchmark rate at 1 percent since then, predating Bank of Canada Governor Stephen Poloz taking the job, in the longest stretch since World War II.
Yields on government bonds due in 2045 touched a record low of 2.04 percent today, after dropping five basis points.
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