Loonie loses more ground amid sharply different rate prospects for Canada, U.S. | iNFOnews | Thompson-Okanagan's News Source

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Loonie loses more ground amid sharply different rate prospects for Canada, U.S.

Canadian dollars (loonies) are pictured in Vancouver, Sept. 22, 2011. THE CANADIAN PRESS/Jonathan Hayward

TORONTO - The Canadian dollar continued to fall Thursday as the U.S. currency appreciated after the U.S. Federal Reserve suggested interest rates could be headed up sooner than thought.

The loonie lost 0.24 of a cent to 88.69 cents US after tumbling almost 9/10s of a cent Wednesday to its first close below 89 cents US since mid-2009.

At the end of the Federal Reserve's two-day policy meeting, central bank chair Janet Yellen signalled that the Fed could begin raising short-term rates six months after it halts its bond purchases around year’s end.

The Fed has been cutting back on those purchases, a key element of stimulus that had kept long-term rates low, and said Wednesday it would further taper purchases by another US$10 billion a month to $55 billion.

The Fed also reaffirmed its plan to keep short-term rates low. But it no longer mentions a specific unemployment rate that might lead it eventually to raise rates. The Fed says instead it will monitor a wide range of economic data before approving any rate increase.

Putting added pressure on the loonie were comments earlier in the week by the governor of the Bank of Canada that interest rate hikes in Canada could be further away than thought.

Stephen Poloz said that slower than normal growth may be the new norm. And he said those conditions will require central bankers to keep interest rates low for longer than they would have in the past. And, he added that a rate cut by the Bank of Canada could not be ruled out.

"The combination of a more dovish Governor Poloz and a less dovish Chair Yellen is a powerful near-term negative weight for the Canadian dollar," said Camilla Sutton, chief FX strategist for Scotiabank.

"The events over the last few days risk that Canadian dollar weakness is more pronounced for longer before the currency stabilizes."

The loonie has tumbled more than 5.5 per cent so far this year.

Falling commodities also weighed on the Canadian currency.

Nervousness about Chinese growth continued to pummel copper prices with the May contract falling seven cents to US$2.92 a pound. The metal has tumbled more than nine per cent just since March 6.

Deutsche Bank said earlier this week that heightened volatility in the Chinese currency market, alongside the country's first domestic bond default, have sparked fears that Chinese commodity financing deals could unravel. Such an event could also result in widespread metals liquidation.

Hopes that the Ukraine crisis won't worsen continued to weaken bullion prices and the April contract lost $19.30 to US$1,322 an ounce.

Oil prices also fell with the April contract down 52 cents to US$99.85 a barrel.

News from © The Canadian Press, 2014
The Canadian Press

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