Canada's Dollar Falls as Carney Signals More Interest-Rate Cuts

Canada's dollar declined as the new central bank governor signaled the benchmark lending rate will be cut further, underlining the view that the economy will slow this year. Government bonds rose.

The Canadian dollar fell back below par with its U.S. counterpart and was lower against all 16 most actively traded currencies, dropping about 0.7 percent against the Japanese yen.

Bank of Canada Governor Mark Carney signaled over the weekend in Tokyo, where he was attending a meeting of finance ministers and central bankers from the Group of Seven nations, that bank policy makers will cut interest rates in coming months as slowing export growth threatens Canada's economy. The next interest-rate decisions are scheduled for March 4 and April 22.

``Carney reaffirmed the market expectations regarding the future rate moves,'' said Maria Jones, a currency strategist at TD Securities in Toronto. ``That's to some extent weighing on the Canadian dollar.''

Canada's currency, known as the loonie after the image of the bird on its one-dollar coin, fell 0.3 percent to C$1.0016 at 4:03 p.m. in Toronto, from 99.89 Canadian cents per U.S. dollar on Feb. 8.

The Bank of Canada has lowered rates twice since December and said last month it will probably need to cut them again as the slowdown in the U.S. spills across the border. The U.S. consumes about 80 percent of Canada's exports. Carney, who became the governor on Feb. 1, said he agrees with the assessment.

`Additional Stimulus'

``The effects of the slowing U.S. economy will lead to additional downward pressure on Canada's export growth,'' Carney said. ``I'm comfortable with the statement that additional monetary stimulus is likely to be required in the near term.''

Canada's key lending rate was lowered Jan. 22 to 4 percent, and the central bank will cut it to 3.25 percent by June, according to the median forecast in a Bloomberg survey.

The yield on Canada's 10-year bond declined about 4 basis points, or 0.04 percentage point, to 3.79 percent. The price of the 4 percent government security due in June 2017 rose 30 cents to C$101.67.

The currency pared its losses after crude oil rose to a one- month high as Valero Energy Corp., the biggest U.S. refining company, shut its Delaware refinery because of a power failure late yesterday.

``The Canadian dollar has found a little sweet spot'' between a penny above and below parity, said Jack Spitz, director of foreign exchange trading at National Bank of Canada, in Toronto. A spike ``in the crude oil prices is providing some strength to the currency.''

The loonie rose about 1 percent on Feb. 8 when the government said the economy created 46,400 jobs in January, four times more than the forecast in a Bloomberg survey.

``Carney also discounted the importance of one data point in the decision-making,'' said Jones, referring to the jobs report. She said the currency may fall to C$1.0130 in a month.

The currency also declined as traders sold assets from higher-yielding countries after Group of Seven officials warned of further financial-market turmoil.

Courtesy - Bloomberg.com