Canadian dollar weakens as slumping oil prices offset strong GDP data
By Fergal Smith
TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Wednesday as a drop in oil prices offset data showing strength in the domestic economy.
Canada's gross domestic product grew at an annualized 3.7 percent pace, slightly below economists' expectations for 3.9 percent, although growth in both the third and fourth quarters of 2016 was revised upward.
The economy also appeared to have solid momentum heading into the second quarter, with growth rising by a better-than-expected 0.5 percent in March.
"If we continue to get growth numbers like this ... it's going to be tougher for the Bank of Canada to avoid rate hikes at some point in the distance," said Derek Holt, head of capital markets economics at Scotiabank.
The central bank last week kept interest rates on hold at 0.5 percent, but struck a more upbeat tone than investors had expected.
Chances of a Bank of Canada rate hike this year have increased to 30 percent from roughly 1-in-10 before the interest rate decision, data from the overnight index swaps market showed. BOCWATCH
U.S. crude oil futures CLc1 settled 2.7 percent lower at C$48.32 a barrel despite Organization of the Petroleum Exporting Countries-led output cuts to reduce a global glut. Output from OPEC rose in May, the first monthly increase this year, a Reuters survey found. [O/R]
Oil is one of Canada's major exports. Weakening in the commodity could push speculators to add to bearish bets on the Canadian dollar, said Hendrix Vachon, senior economist at Desjardins. Continued...