The Canadian dollar CADUSD weakened to a near two-week low against its U.S. counterpart on Wednesday as investors bet the Bank of Canada would cut interest rates further after it eased for the first time in more than four years.
The loonie was trading 0.2 per cent lower at 1.3710 to the U.S. dollar, or 72.94 U.S. cents, after touching its weakest intraday level since May 23 at 1.3741.
The Bank of Canada trimmed its key policy rate by 25 basis points to 4.75 per cent, in a widely expected move, and said more easing was likely if inflation continued to fall.
“Based on the current economic momentum and the likelihood that population growth now likely supports aggregate supply more than demand, we think the BoC will cut rates at least once more before the Fed (Federal Reserve) meets on Sept. 18, leaving CAD vulnerable to a further widening in rate differentials,” said Simon Harvey, head of FX analysis for Monex Europe and Monex Canada.
Investors see a roughly 40 per cent chance the central bank would cut another 25 basis points at its next meeting on July 24 while a cut by September is fully priced in, swap market data showed.
The move to lower rates came despite data showing that the Canadian services economy grew in May for the first time in a year as firms saw an increase in new business and hired workers at a faster pace.
The price of oil, one of Canada’s major exports, edged up from four-month lows. U.S. crude oil futures were up 0.4 per cent at $73.53 a barrel.
Canadian government bond yields fell across the curve. The 10-year was down 5.7 basis points at 3.393 per cent, trading at its lowest level since March 12.