Canadian dollar dips as Fed statement boosts greenback

TORONTO (Reuters) - The Canadian dollar weakened slightly against its U.S. counterpart on Wednesday, holding near 14-year lows, as the Federal Reserve’s statement after its policy meeting triggered broader gains for the greenback.

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

The U.S. dollar climbed against a basket of major currencies after the Fed left interest rates on hold but signaled it was still on track for two more hikes this year.

“A Fed that looks through the weakness in Q1 (first quarter), they are still fairly optimistic, so I think that’s really uplifting the U.S. dollar,” said Jimmy Jean, senior economist at Desjardins.

In contrast, recent strength in the Canadian economy has been overshadowed by U.S. tariffs on Canadian softwood lumber, a more uncertain outlook for the North American Free Trade Agreement and lower prices for oil, one of Canada’s major exports.

Also, the funding crisis at mortgage lender Home Capital may spark a welcome cooling in Canada’s housing market and take pressure off the Bank of Canada to raise interest rates.

“I still think the Canadian dollar has ways to go lower ... markets will remain anxious about the prospects for the Canadian economy,” Jean said.

At 4 p.m. EDT (2000 GMT), the Canadian dollar CAD=D4 was trading at C$1.3717 to the greenback, or 72.90 U.S. cents, down 0.1 percent.

The currency traded in a range of C$1.3680 to C$1.3740. On Tuesday it had slumped to a fresh 14-month low at C$1.3758.

Still, the Canadian dollar will weather a “perfect storm” to regain some ground over the coming months, a Reuters poll showed on Wednesday, as a pickup in the domestic economy could prod the Bank of Canada to raise interest rates by next year.

U.S. crude oil futures settled up 16 cents at $47.82 a barrel after a volatile session as the market mulled U.S. crude inventory data.

Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries, with the two-year CA2YT=RR down 4.5 Canadian cents to yield 0.702 percent and the 10-year CA10YT=RR falling 26 Canadian cents to yield 1.545 percent.

Canada’s 2-year yield fell 1.1 basis points further below its U.S. counterpart to a spread of -59.4 basis points, at nearly its widest spread in 10-years.

Canada's trade report for March is due on Thursday, and the April employment report is due on Friday. ECONCA

Reporting by Fergal Smith; Editing by Nick Zieminski and Sandra Maler