Canadian dollar hits six-week low as rate cut bets nudge higher

By Fergal Smith
FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened to a near six-week low against its U.S. counterpart on Tuesday after a speech by a senior Bank of Canada official supported the view that the central bank is moving closer to an interest rate cut.

Canada's financial system is in a relatively good place to weather any potential storms generated by a weakening global economy and the trade war between the United States and China, Bank of Canada Senior Deputy Governor Carolyn Wilkins said.

"The open-ended tone of Wilkins' remarks arguably pushed the Bank slightly closer to the easing posture that's been adopted by other key central banks in recent months," Don Curren, a market strategist at Cambridge Global Payments, said in a note.

Chances of a Bank of Canada interest rate cut as soon as March rose to 64% from less than 60% before Wilkins' speech, data from the overnight index swaps market showed. <BOCWATCH>

In October, Canada's central bank shifted to a more dovish stance as it cut its economic growth forecasts and expressed concern about global trade uncertainty.

At 3:07 p.m. (2007 GMT), the Canadian dollar <CAD=D4> was trading 0.4% lower at 1.3264 to the greenback, or 75.39 U.S. cents. The currency touched its weakest intraday level since Oct. 11 at 1.3272.

The decline for the loonie came as thousands of workers at Canada's largest railway went on strike for the first time in a decade, disrupting the shipping of commodities, and domestic data showed monthly declines for factory sales and home prices.

Canadian factory sales decreased by 0.2% in September, hampered by partial shutdowns for maintenance at some refineries, data from Statistics Canada showed.

The Teranet-National Bank Composite House Price Index fell 0.1% in October, weighed by seasonal pressures.

Adding to headwinds for the loonie was a sharp drop in the price of oil, one of Canada's major exports. U.S. crude oil futures <CLc1> settled 3.2% lower at $55.21 a barrel.

Canadian government bond prices were higher across the yield curve, with the two-year <CA2YT=RR> up 4.5 Canadian cents to yield 1.517% and the 10-year <CA10YT=RR> rising 33 Canadian cents to yield 1.451%.

The gap between Canada's 2-year yield and its U.S. counterpart widened by 2.9 basis points to a spread of 8.1 basis points in favor of the U.S. bond.

Canada's inflation report for October is due on Wednesday, while Bank of Canada Governor Stephen Poloz is due to speak on Thursday on economic change.


(Reporting by Fergal Smith; Editing by Bernadette Baum and Peter Cooney)