The Canadian dollar traded below 75 cents US Friday, for the first time since March.
The almost one-cent drop comes partly because of signals from the Bank of Canada — although the central bank is likely fine with a lower loonie.
The central bank on Wednesday discussed the possibility of cutting interest rates in its latest monetary policy report. And even though it chose to hold rates steady, at 0.5 per cent, even the suggestion of a rate cut has given currency traders something to chew over ever since.
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“Markets are now looking for a far higher probability of a rate cut,” BMO senior economist Benjamin Reitzes said in an interview.
If there’s an interest rate cut on the horizon, some traders will sell, if they don’t feel it’s worth holding on to the Canadian currency for now.
“When interest rates go down, you get paid less for every Canadian dollar you have,” Reitzes explained.
Adding fuel to the speculation of a possible rate cut was a set of disappointing data Friday: August retail sales slumped, and annual inflation for September was cooler than expected.
Although Bank of Canada governor Stephen Poloz has denied talking down the loonie in the past, a lower Canadian dollar has its benefits, particularly for exports, a part of the economy that is still struggling.
A wait-and-see stance with a weaker loonie could be a safer bet than tinkering with rates.
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“If you cut interest rates, that just adds to the housing price problem,” said Colin Cieszynski, strategist with CMC Markets.
“Given the choice between the two, the Bank of Canada would rather talk the dollar down, or create a situation where the loonie falls under its own weight.”
The possibility that the U.S. Federal Reserve may raise rates later this year could weigh on the Canadian dollar even further.
“I think we probably have a few more cents to weaken from here,” Reitzes said.
Article source: http://www.cbc.ca/news/business/canadian-dollar-loonie-1.3816183?cmp=rss