The Canadian dollar slid to its lowest level since December on Tuesday, as traders anticipated the Bank of Canada will be slower than its global peers to raise interest rates.
The loonie slumped to 1.3969 against the US dollar, marking the lowest level of the year. The declines came as prices for oil — a key Canadian export — slumped below $90 per barrel. Market participants were also wagering that the country’s central bank will keep its key rate on hold when it announces its latest policy decision on Wednesday.
“The Bank of Canada decision presents modest dovish risks for the loonie,” said Pat Locke, a currency strategist at JPMorgan Chase & Co. “We are content to run short loonie trades against the US dollar,” he said.
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All 27 economists polled by Bloomberg saw Canada’s central bank keeping rates on hold at 2.25%, more than a full percentage point below the Fed’s benchmark. The central bank said its rate “looks appropriate ” after its April 29 meeting.
The Canadian dollar has tumbled more than 2% versus the greenback since then, making it the biggest loser among its Group-of-10 peers. Two-year US Treasury yields have climbed about 11 basis points so far in June, out-pacing the rise of 7 basis points in Canadian yields of the same tenor.
Speculators have raised their short bets against the Canadian dollar for the past three weeks, according to Commodity Futures Trading Commission data. At Monday’s close, a key options gauge on the currency’s outlook was at its most bearish level since March 30.