Canadian dollar hits lowest this year as oil slumps, Fed weighs

Wed Mar 8, 2017 5:27pm EST
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By Alastair Sharp

TORONTO (Reuters) - The Canadian dollar fell to its lowest level in two months against the greenback on Wednesday as oil prices collapsed, and as the U.S. dollar surged with strong jobs data that heightened expectations of a U.S. interest rate hike next week.

And the loonie, as Canada's currency is colloquially known, could weaken further in coming days, according to Mazen Issa, a senior foreign exchange strategist at TD Securities in New York, as investors reassess recent bullish positions that had ignored widening rate differentials between the bond yields of the two countries as the U.S. Federal Reserve winds up to hike and the Bank of Canada doubles down on a studiously neutral stance.

"We're nearing a very significant inflection point, and I think that there's a risk that we actually test that by this Friday and into the Fed," Issa said.

The Canadian dollar CAD=D4 settled at C$1.3494 to the greenback, or 74.11 U.S. cents, much weaker than Tuesday's close of C$1.3416, or 74.55 U.S. cents. It has jumped 4 Canadian cents since late February.

The currency's strongest level of the session was C$1.3398, while it touched its weakest since Dec. 30 at C$1.3500.

That inflection point Issa referenced sits at C$1.3600, a level approached but not broken twice since November. Breaching it would push the currency to its weakest against the greenback in more than a year.

"The collapse in oil today helps to reinforce those recalibration risks," Issa added.

Oil prices plunged 5 percent as U.S. crude inventories surged much more than expected, stoking concerns a global glut could persist despite OPEC's output curbs. [O/R]   Continued...

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