Canadian dollar weakens to 3-week low as oil falls

Wed Aug 31, 2016 11:12am EDT
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By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened to a three-week low against its U.S. counterpart on Wednesday as oil fell and government data showed a deep contraction in the country’s economy for the second quarter.

Canada's economy shrank at an annualized 1.6 percent rate in the second quarter in its worst showing in seven years, hurt by a drop in exports and a disruption to oil production caused by wildfires in northern Alberta, according to data from Statistics Canada.

Still, there were signs that a pick up was already underway. The economy grew 0.6 percent in June.

"With the strong GDP numbers for June ... they (the Bank of Canada) may be of the view that they could get a stronger rebound in Q3 GDP than the 3.5 (percent) they have assumed," said Paul Ferley, assistant chief economist, Royal Bank of Canada.

He expects the central bank to "stay on the sidelines."

The implied probability of either a central bank rate hike or a rate cut by the end of the year was nearly zero, overnight index swaps data showed. Before the data a 4 percent probability of a rate cut was implied. BOCWATCH

At 9:20 a.m. EDT (1320 GMT), the Canadian dollar CAD=D4 was trading at C$1.3125 to the greenback, or 76.19 U.S. cents, weaker than Tuesday's close of C$1.3096, or 76.36 U.S. cents.

The currency's strongest level of the session was C$1.3080, while it touched its weakest since Aug. 9 at C$1.3134.   Continued...

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. The Canadian dollar strengthened against the U.S. dollar on Friday after Canadian CPI data showed an increase in core inflation.   REUTERS/Mark Blinch (CANADA - Tags: BUSINESS) - RTR4MOVR