Loonie Declines against USD

The Canadian Dollar, which is known as Loonie as well, approached its weakest point in the last 8 months against the greenback. The Bank of Canada has indicated that will not raise the interest rates in near future with the inflation slowing more than expectations and this has brought decline in Loonie.

For the straight 2nd meeting, the Governor of Bank of Canada, Mark Carney softened his language on a tighter policy saying that the inflation is expected to stay at low level in near future. According to Carney, the Canadian Government has an economy with material excess capacity. The warning rates will increase over time, whereas, many are speculating that it would be entirely dropped. The benchmark rate of the country has been kept at 1%.

Loonie tumbled by 0.4% against USD and is currently priced at C$1.0314 per USD. The currency recovered a bit after declining by 0.7% on today, at one point of time. On 1st March, the currency touched CS1.0342, its weakest value since 28th June. The yields for the 10-year Canadian Government bonds increased by 3 basis points to 1.84%. On the other hand, the 2.75% security to mature in June, 2022 experienced a decline of 25 cents and is currently priced at C$107.68.

According to the Bank of Nova Scotia’s Current Strategy Department Head, Camilla Sutton, the Bank of Canada is looking like pushing out the interest rate hikes further into the future and is approaching towards a neutral stance, thereby putting extra pressure on Loonie. Camilla speculated that the Loonie may go down further.

In the every single policy decision since last April, Carney has warned that the rates can be increased and the next long-term move from him is expected to be a rate raise. If this happens, Carney will become the first of G-7 Central Bankers to increase interest rates. Countries such as UK & US are more into buying bonds now for holding down the yields. It is expected that such movements will boost growth of these countries, as the policy rates are very close to 0.

Canada’s GDP grew at 0.6% annualized pace in the 3 months between October and December and this is the slowest growth for the same since 2011’s 2nd quarter. This is lower than projected 1% growth. Many economists feel that Canada is now struggling to reach the full output.