Canadian dollar hits 4-month low as BoC leaves rates on hold

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar weakened on Wednesday to a four-month low against its U.S. counterpart, as the Bank of Canada paused its tightening campaign in a move that contrasted with the Federal Reserves shift this week to a more hawkish message.

The Bank of Canada left its key overnight interest rate on hold at 4.50%, as expected, becoming the first major central bank to move to the sidelines in the face of an anticipated easing of high inflation.

“So right now they are data dependent, assessing the lagged impact of hikes already put through,” said Darcy Briggs, a portfolio manager at Franklin Templeton Canada.

Federal Reserve Chair Jerome Powell reaffirmed his message from Tuesday of higher and potentially faster interest rate hikes. The hawkish message has boosted the U.S. dollar against a basket of major currencies, including the loonie.

The Canadian dollar was trading 0.2% lower at 1.3780 to the greenback, or 72.57 U.S. cents, after touching its weakest level since Nov. 3 at 1.3794.

Meanwhile, economic data showed that Canada recorded a surprise trade surplus of C$1.9 billion ($1.4 billion) in January, driven by broad-based gains in exports.

Canada‘s key export, oil, was down 1.6% at $76.34 a barrel, extending the previous day’s losses.

Canadian government bond yields were lower across a flatter curve. The 2-year was little changed at 4.328%, while the 10-year was down 4 basis points at 4.278%.

The 2-year fell 3.5 basis points further below its U.S. equivalent to a gap of about 72 basis points, its biggest since May 2019.

(Reporting by Fergal Smith; Editing by Bernadette Baum and Paul Simao)