Canda dollar near two-week low as Carney speech weighs

Tue Oct 16, 2012 1:56pm EDT
 
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By Alastair Sharp and Claire Sibonney

TORONTO (Reuters) - The Canadian dollar hit its weakest level in nearly two weeks against its U.S. counterpart on Tuesday after a Bank of Canada speech omitted mention of its long-stated intention to raise interest rates once conditions permit.

Governor Mark Carney said on Monday that the central bank would take whatever action is necessary to keep inflation on target and acknowledged the effect global uncertainty was having on Canada's resource-linked economy.

But the speech omitted key hawkish language about withdrawal of "considerable monetary policy stimulus".

The Canadian dollar was initially little changed as analysts tried to gauge whether Carney was simply refraining from including forward-looking language ahead of the bank's October 23 interest rate decision, or abandoning the monetary tightening bias altogether.

But the currency slid overnight as traders decided the omission was a dovish signal.

"It pretty much wrung out any rate expectations that were in place for next year," said Mark Chandler, head of Canadian fixed income and currency strategy at Royal Bank of Canada. "There was a bit of a delayed reaction in currency markets."

RATE HIKE BETS PULLED

Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that traders have eliminated their bets on a rate hike in 2013.   Continued...