* C$ weakens to C$1.0005 to the greenback, or $0.9995
* C$ at softest since Nov. 19
* Bank of Canada slashes growth forecast, rate hikes “less
imminent”
By Alastair Sharp
TORONTO, Jan 23 (Reuters) – The Canadian dollar tumbled to
trade for less than equal value with the U.S. dollar on
Wednesday after the Bank of Canada held interest rates steady
and said a future rate hike was “less imminent” as it reduced
its growth forecasts.
The plunge to a two-month low came after the central bank
dramatically revised its growth assumptions and said the
Canadian economy likely grew by 1 percent annualized in the
fourth quarter, after initially predicting 2.5 percent growth.
“Given the tone … it’s not surprising that the Canadian
dollar would weaken on the statement because the market probably
will push forward its outlook for interest rates, possibly into
2014,” said Sal Guatieri, a senior economist at BMO Capital
Markets.
Overnight index swaps, which trade based on expectations for
the central bank’s key policy rate, showed that after the
announcement traders reduced their bets on a rate hike in late
2013.
The Canadian dollar weakened to as low as C$1.0005
to the greenback, or $0.9995, from C$0.9930 just before the news
and C$0.9927 at Tuesday’s North American close. That was its
weakest level since Nov. 19.
Dizzying household credit growth and a hot housing market
had been a top concern of both the central bank and the finance
ministry, but the bank’s language on Wednesday signaled the
belief that this was getting under control.
This could be interpreted as a reason to shy away from
raising rates, which could make the Canadian currency and its
government bonds less attractive to international investors.
Unlike most of its developed economy peers, Canada’s central
bank has indicated it will look to raise interest rates once
conditions allow, which economists had interpreted to mean late
this year or early in 2014.
“The Bank of Canada stood out as the most hawkish (central
bank in a) G-7 country over the past two years or so,” said
Jimmy Jean, an economic strategist at Desjardins. “This is where
they’re coming off that pedestal. It’s no longer the outlier.”
The price of Canadian government debt rose across the curve,
sending yields lower. The two-year bond was up 9
Canadian cent to yield 1.127 percent and the benchmark 10-year
bond jumped 39 Canadian cents to yield 1.869
percent.
