The Canadian dollar weakened on Wednesday to its lowest level in a week against the greenback as the stock market rally dating to the start of the year lost some momentum and the Bank of Canada warned that U.S. trade uncertainty was hurting the economy.
U.S. stocks edged lower, pulling back from a two-month high, as video-game makers gave disappointing revenue forecasts and investors awaited developments on U.S.-China trade relations.
“Emerging market currencies are coming off, equities are coming off, we are seeing a bit more volatility come through markets the last couple of days,” said Mark McCormick, North American head of FX strategy at TD Securities.
“The Canadian dollar is a high beta currency in the G10, which means if equities are going down the Canadian dollar is weakening as well,” he said.
Canada is running a current account deficit and is a major commodities producer, so its economy tends to be sensitive to the global flow of trade and capital.
U.S. crude oil futures settled 0.7 per cent higher at $54.01 a barrel but gains were capped by a rising U.S. dollar and ongoing concerns about a global economic slowdown.
Uncertainty over U.S. trade policies is holding back Canadian business investment despite strong economic fundamentals, Bank of Canada Deputy Governor Timothy Lane said.
The pace of purchasing activity in Canada slowed more than expected to hit a four-month low in January, according to Ivey Purchasing Managers Index data.
At 4:46 p.m. (2146 GMT), the Canadian dollar was trading 0.6 per cent lower at 1.3211 to the greenback, or 75.69 U.S. cents. The currency touched its weakest intraday level since last Wednesday at 1.3214.
The loonie’s decline came as the Australian dollar was pressured by a surprise signal from the Reserve Bank of Australia of a possible interest rate cut. Australia is also a major produces of commodities.
Still, the loonie has rallied 3.3 per cent since the start of 2019, which makes it the top-performing G10 currency.
The Canadian dollar will extend this year’s rally over the coming 12 months, according to a Reuters poll of currency strategists who expect the U.S. dollar to fall broadly and for global monetary policy to stay looser than previously expected.
The value of Canadian building permits increased by 6.0 per cent in December from November, data from Statistics Canada showed.
Canadian government bond prices were higher across the yield curve, with the 10-year rising 12 Canadian cents to yield 1.924 per cent.