The Canadian dollar weakened against its U.S. counterpart on Tuesday, pulling back from an 11-day high the previous day as weak housing data from one of Canada’s major cities pointed to the economy’s susceptibility to higher interest rates.
Vancouver home sales slumped 31.4 per cent in March on an annual basis to hit the lowest for the month in more than three decades, the Real Estate Board of Greater Vancouver said.
“Today’s movement (in the Canadian dollar) is really just a reaction to the really soft residential real estate numbers from Vancouver,” said Scott Lampard, head of global markets at HSBC Bank Canada.
“The interest rate sensitivity of the Canadian economy because of the debt load that has been layered on ... is probably higher than people had thought it was before, at which case at one-and-three-quarters percent, monetary policy is already in a restrictive position.”
The Bank of Canada has tightened its benchmark interest rate 125 basis points since July 2017, to a level of 1.75%.
On Monday, Bank of Canada Governor Stephen Poloz expressed guarded optimism that the country would emerge from a soft patch, but maintained a cautious tone overall, saying the economic outlook still warrants an interest rate below the neutral range.
The central bank’s estimate of neutral, the level at which it is neither stimulating nor restraining the economy, is between 2.5 per cent and 3.5 per cent.
At 3:32 p.m., the Canadian dollar was trading 0.3% lower at 1.3345 to the greenback, or 74.93 U.S. cents. The currency, which touched on Monday its strongest level in nearly two weeks at 1.3297, traded in a range of 1.3303 to 1.3375.
The decline for the loonie came even as the price of oil, one of Canada’s major exports, rose to its highest this year on the prospect that more sanctions against Iran and further disruptions to Venezuelan output could deepen an OPEC-led supply cut.
U.S. crude oil futures settled 1.6 per cent higher at $62.58 a barrel.
Canadian government bond prices were higher across the yield curve, with the 10-year rising 33 cents to yield 1.664 per cent.
Canada’s 10-year yield fell 3.9 basis points more than the yield on the 3-month T-bill to leave the longer-term yield slightly below the short-term rate, a potential harbinger of recession.
Canada’s curve inverted in March for the first time since 2007.