Canadian dollar hits two-week low as Bank of Canada takes dovish turn

TORONTO (Reuters) - The Canadian dollar weakened to a near two-week low against the greenback on Wednesday as expectations rose that the Bank of Canada would cut interest rates after the central bank expressed greater concern about global trade uncertainty.

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

Canada’s central bank held interest rates steady at 1.75% as expected but left the door open to a possible cut over the coming months to help the economy weather the damaging effects of global trade conflicts.

“The loonie has sold off post-statement due to the fact that the BoC is beginning to witness the effects of external headwinds on the Canadian economy,” said Simon Harvey, FX market analyst for Monex Europe and Monex Canada.

The central bank’s “dovish stance” raises expectations for policy easing, “especially if the economic data and external climate deteriorates further,” Harvey said.

Money markets moved to fully price in a rate cut as early as July. Before the announcement, chances of a cut next year were seen at less than 50%. BOCWATCH

At 4:51 p.m. (2051 GMT), the Canadian dollar CAD=D4 was trading 0.5% lower at 1.3158 to the greenback, or 76.00 U.S. cents. The currency touched its weakest intraday level since Oct. 17 at 1.3210.

The U.S. dollar .DXY fell against a basket of major currencies after the Federal Reserve eased for the third time since July but signaled no more reductions ahead.

The Fed’s latest cut lowered the range for its policy rate to below the Bank of Canada’s equivalent rate for the first time since December 2016.

U.S. crude oil futures CLc1 settled 0.9% lower at $55.06 a barrel after a steep U.S. crude inventory build added to worries about a possible delay in resolving the U.S.-China trade war, which has hurt global oil demand.

Canadian government bond prices were higher across the yield curve, with the two-year CA2YT=RR up 29 Canadian cents to yield 1.558% and the 10-year CA10YT=RR rising 138 Canadian cents to yield 1.452%.

On Monday, the 10-year yield touched its highest intraday level since July 16 at 1.628%.

Reporting by Fergal Smith; Editing by Jonathan Oatis and Peter Cooney