January 14, 2016 / 9:34 AM / 2 years ago

FOREX-Oil price slide sends Canadian dollar to lowest since 2003

* Canadian dollar on defensive as oil prices fall further

* Euro gains on Reuters report ECB wary of more action

* Sterling awaits BOE’s first policy review of 2016

By Jemima Kelly

LONDON, Jan 14 (Reuters) - Oil-rich Canada’s dollar fell to its lowest level since April 2003 on Thursday as crude prices slid to their weakest in 12 years, fuelling speculation the Bank of Canada could cut interest rates as early as next week.

Ahead of the Bank of England’s latest monetary policy meeting and interest rate decision, sterling hit an 11-month low against the euro of 75.77 pence.

The euro was up across the board on a Reuters report that European Central Bank policy makers are sceptical about the need for further policy action in the near term.

The loonie - traders’ name for the Canadian dollar - fell to C$1.4389 against its U.S. counterpart as benchmark brent crude hit a new 12-year low. Canadian heavy crude also collapsed to around $15 a barrel this week, the lowest level since the benchmark was introduced in 2004.

“Negative oil price momentum is negative for Canada generally, given that it’s a major oil exporter, and also it seems to have become the case that BOC rate expectations are also linked directly to the oil price,” said RBC Capital Markets currency strategist Adam Cole.

“So the move in the currency is being compounded.”

The market gave sterling a wide berth even though the consensus is for the BOE to leave interest rates on hold at its first monetary policy decision of the year on Thursday. It traded at $1.4401, close to a 5-1/2-year low hit earlier in the week.

Some investors suspect the central bank may sound more dovish given the uncertain global backdrop. But given the fact that sterling has fallen more than 5 percent since the last meeting, easing some deflationary pressures, policymakers could sound a more upbeat tone, which could provide the pound with some respite.

“Policymakers are likely to refrain from sending significant new signals until the February Inflation Report,” wrote BNP Paribas strategists in a note to clients. “One risk to the pound is if the vote split changes from 8-1 to 9-0, but with rates markets already priced for no tightening until well into 2017, the impact should be limited.”

The European Central Bank will also be publishing the minutes from its December meeting 1230 GMT.

The euro rose half a percent to $1.0928 after the Reuters report on the central bank’s policy stance.

The dollar was flat against the yen at 117.655, close to a 4-1/2-month low hit earlier in the week.

The low-yielding Japanese currency tends to gain in times of market stress as it is often used as a funding currency for investment in risk assets, and consequently can rise when there is a retreat from such assets. (Additional reporting by Masayuki Kitano in Singapore and Ian Chua in Sydney)

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