Canadian dollar tumbles to one-week low; Poloz says rate cut 'on the table'

TORONTO (Reuters) - The Canadian dollar weakened to a one-week low against its U.S. counterpart on Wednesday as oil fell and Bank of Canada Governor Stephen Poloz kept alive prospects of an interest rate cut.

Bank of Canada Governor Stephen Poloz speaks during a news conference in Ottawa, Ontario, Canada, January 18, 2017. REUTERS/Chris Wattie

At a press conference following the central bank’s interest rate announcement Poloz said a rate cut “would remain on the table for as long as downside risks are still present.”

The remark pressured the loonie to its weakest since Jan. 11 at C$1.3235 to the greenback. It was at C$1.3090 before the press conference began.

“The market understood that even though (the central bank) revised its forecast higher that it still had a rate cut at the back of its mind,” said Jimmy Jean, senior economist at Desjardins.

The central bank held its policy rate steady at 0.50 percent, as expected, saying the big unknown of what policies U.S. President-elect Donald Trump will enact makes it prudent to wait and see.

“I think what this (interest rate announcement) really hammers home is that they are in no mood to raise interest rates this year,” said Andrew Kelvin, senior rates strategist at TD Securities.

The implied probability of a Bank of Canada rate hike by the end of the year fell to 30 percent from 40 percent before the announcement, data from the overnight index swaps market showed. BOCWATCH

At 1:13 p.m. ET (1813 GMT), the Canadian dollar CAD=D4 was trading at C$1.3216, or 75.67 U.S. cents, much weaker than Tuesday's close of C$1.3058, or 76.58 U.S.

The loonie reached on Tuesday a nearly three-month high at C$1.3019, helped by recent data that showed a surge in jobs in December and the first trade surplus in more than two years in November, while a Bank of Canada survey last week pointed to improving business conditions.

Prices of oil, one of Canada’s major exports, fell on expectations that U.S. producers would boost output.

U.S. crude CLc1 prices were down 2.19 percent at $51.33 a barrel.

The U.S. dollar .DXY rose against a basket of major currencies as investors bought the greenback after five consecutive days of selling.

Canadian government bond prices were mixed across a steeper yield curve, with the two-year CA2YT=RR up 4.5 Canadian cents to yield 0.756 percent and the 10-year CA10YT=RR falling 4 Canadian cents to yield 1.673 percent.

The two-year yield fell 5.1 basis points further below its U.S. equivalent to a spread of -42.9 basis points, as Canadian government bonds outperformed.

Reporting by Fergal Smith; Editing by Nick Zieminski and David Gregorio