Canadian dollar snaps record losing streak after Bank of Canada holds interest rates

The Canadian dollar rallied, snapping a record losing streak, as the nation’s central bank kept rates of interest unchanged in the face of sinking oil prices.

The loonie rose from the cheapest level since 2003 as the Bank of Canada held its benchmark at 0.5 per cent and said stronger U.S. demand, a weaker currency and last year’s rate cuts are leading the economy out of an oil slump.

Before the choice, traders had assigned better than a Half chance of a discount, according to data compiled by Bloomberg. Canadian two-year notes fell as the central bank held pat, pushing yields up from record lows and trimming the benefit of holding similar-maturity Treasuries towards the least in a month.

“It provides a bit of a window for a relief rally within the Canadian dollar,” Shaun Osborne, chief foreign-exchange strategist for Bank of Nova Scotia, said from Toronto. “It suggests the bank thinks there’s enough accommodation within the system, or coming through the system, to get the economy back to where it thinks it ought to be.”

Related

Bank of Canada keeps rates on hold as economy struggles through ‘difficult adjustment”Currency instability’ now a significant concern for Canada

Wednesday Rebound

The loonie, because the Canadian dollar is known for the image from the aquatic bird on the $1 coin, gained 0.7 per cent to $1.4476 per U.S. dollar at 3:30 p.m. in Toronto. One Canadian dollar buys about 69 U.S. cents. The loonie reached the least expensive since April 2003 on Wednesday before the rate announcement.

The yield on Canada’s benchmark two-year bond rose about 10 basis points, or 0.1 percentage point, to 0.4 percent, after reaching an archive low of 0.25 %. The extra yield investors have for owning two-year Treasuries sank to 44 basis points, minimal since mid-December.

Tuesday marked the loonie’s 13th straight daily decline, a long losing streak because the country ended its currency’s peg towards the greenback and let it trade freely in 1971.

Prices for oil, until this past year Canada’s largest export, are down a lot more than 25 per cent this year on signs that the glut of worldwide supply won’t ease any time soon while demand may stay muted as worldwide economic growth slows.

The Bank of Canada cut rates of interest twice last year, saying the economy needed the help as it transitioned to non-commodity exports from oil as its main driver. A three-year slide in the loonie has helped, though the country’s manufacturing capacity still remains below its heyday because it faces stiffer competition in the likes of Mexico and China.

“The protracted procedure for reorientation towards non- resource activity is underway, helped by stronger U.S. demand, the lower Canadian dollar, and accommodative monetary and financial conditions,” policy makers led by Governor Stephen Poloz said in a statement.

Bloomberg News