The Canadian dollar fell to its lowest since 2009 after the Bank of Canada cut interest rates for a second time this year to support the economy amid tumbling commodity prices.
The loonie fell against 15 of 16 major currencies, gaining against only the New Zealand dollar. It lost about 1.5 percent against the greenback after the central bank moved to stem the damage from a crash in oil prices and downgraded its growth forecasts.
“The loonie’s wings have been clipped quite considerably after today’s announcement,” Scott Smith, senior market analyst at Cambridge Global Payments, a global foreign-exchange and payments provider, said via e-mail from Calgary. The Bank of Canada “has taken a fairly downbeat assessment of the economy.”
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, traded at C$1.2920 per U.S. dollar at 4:12 p.m. in Toronto and reached C$1.2958, the weakest since March 2009, when the country was last in recession. One loonie buys 77.40 U.S. cents.
The Bank of Canada dropped its benchmark rate on overnight loans between commercial banks to 0.5 percent from 0.75 percent, where it had been since a cut in January. Policy makers led by Governor Stephen Poloz said “the lower outlook for Canadian growth has increased the downside risks to inflation.” Crude oil, Canada’s biggest export, is almost 50 percent cheaper than a year ago.
The central bank said economic output probably shrank at a 0.5 percent annualized pace in the second quarter, compared with an April prediction of a 1.8 percent expansion. The economy registered a 0.6 percent contraction from January to March.
“The impact of the legacy in oil has been much more protracted than they assumed and the recovery in the non-energy sector has been much more delayed,” said Jeremy Stretch, a strategist at Canadian Imperial Bank of Commerce in London.