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The Canadian dollar weakened to the worst state in a month against its U.S. counterpart after the Bank of Canada cut its growth forecast for 2013 and announced economic slack will persist for more than two years.
The currency dips down after the central bank lowered its 2013 growth forecast to 1.5 percent from the 2 percent it had predicted in January, after recent data in Canada, China and the U.S. trailed forecasts. Governor Mark Carney kept unchanged both his policy interest rate at 1 percent and his bias to tighten even as he lowered his growth forecast.
“Although the modest withdrawal aspect is left in the statement, the slashed growth and inflation forecasts leave plenty of room for Canadian dollar rates to price rate cuts down the line,” Shahab Jalinoos, a senior currency strategist for UBS AG in Stamford, Connecticut, said in an e-mail. “Broader issues like falling commodity prices” will propel the Canadian dollar lower, he stated.
The loonie, the Canadian dollar’s nickname, fell 0.6 percent to C$1.0265 per U.S. dollar at 5 p.m. in Toronto. The currency dropped to as low as C$1.0294, the least since March 13. One loonie purchase 97.42 U.S. cents.
Bonds Advances
Canada’s benchmark 10-year government bonds boost, with yields surrendering three basis points or 0.03 percentage point, to 1.71 percent, hitting the lowest point since Dec. 10. The 1.5 percent security maturing in June 2023 closed 24 cents higher at C$98.06.
The Bank of Canada will declare additional details tomorrow about an April 24 auction of securities maturing in 2015.
The yield on December 2013 bankers’ acceptances, a measure of interest-rate expectations, fell to the lowest since March 21, the day the Canadian government announced its 2013 budget and the last time it pared its growth forecast. The yield on the notes fell to 1.22 percent.
Carney’s reduced forecast follows the International Monetary Fund, which yesterday lowered its forecast to 1.5 percent from 2 percent and said Canada’s growth will be the slowest in the Group of 20 outside Europe.
Central Bank
“The members of the Bank of Canada have clearly followed the lead of many central bankers and the market as a whole in developing a more cautious stance on the pace of global growth in 2013,” Adrian Miller, director of fixed-income strategy at GMP Securities LLC, said in a note to clients. “The downward pressure on commodity prices that is likely to persist over the near term has resulted in a slight pause in growth expectations.”
Job data in Canada and the U.S., along with U.S. retail sales and first quarter gross domestic product growth in China have all come in below the median forecast in Bloomberg surveys of economists since the beginning of April.
Higher rates could trigger further gains in Canada’s dollar, which the central bank said is already hurting exports because of the dollar’s strength. The currency is also elevated because of haven flows and the impact of loose monetary policies elsewhere, the bank’s report stated.
