Canadian dollar weakens as oil falls, greenback gains

Thu Nov 10, 2016 5:07pm EST
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By Alastair Sharp

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Thursday, pressured by lower oil prices and broader gains for the greenback as investors weighed how the policies of U.S. President-elect Donald Trump could affect trade and economic growth.

Canadian government bond prices were lower across a steeper yield curve in sympathy with U.S. Treasuries as investors bet that Trump will enact policies that stoke inflation.

But with Canada unlikely to match any future U.S. rate hikes due to tepid growth, some analysts say spreads between the two countries yields should widen, putting further pressure on the Canadian currency.

The Canadian central bank cut rates twice last year as a plunge in oil prices hit the economy. The bank has held rates at 0.50 percent since July 2015, but acknowledged after its policy meeting last month that it had considered cutting again.

Darcy Browne, managing director of foreign exchange sales at CIBC Capital Markets, said the loonie could hit C$1.40 before Trump's inauguration in January.

The Canadian dollar CAD=D4 settled at C$1.3483 to the greenback, or 74.17 U.S. cents, much weaker than Wednesday's close of C$1.3378, or 74.75 U.S. cents.

However, over the longer term, Trump's promise to cut taxes and spend on infrastructure could help Canada's export-driven economy, Browne said.

"If he does 'make America great again,' we can probably ride the coattails," Browne said. "If you're talking a massive infrastructure build in the United States, it requires raw materials, most of which we probably have and can help provide," Browne said.   Continued...

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015.    REUTERS/Mark Blinch