Canadian Dollar Touches New 12-Year Low as China Clouds Outlook

  • Odds of a rate cut at central bank's Jan. 20 meeting now 19%
  • China shuts stock market early to stem rout, devalues currency

The Canadian dollar touched a fresh 12-year low and stocks were headed for a bear market plunge as China’s financial turmoil stretched into a fourth day, raising bets the Bank of Canada may cut interest rates as soon as this month to stimulate the economy.

The currency fell against most of its major peers as the price for crude oil, Canada’s biggest export until last year, continued falling. Crude touched it’s own 12-year low of $32.10 per barrel as China devalued its currency for an eighth straight day and then shut its stock market early to stem the market’s sell off.

The odds the Bank of Canada will cut its benchmark interest rate back to match a record low 0.25 percent at its Jan. 20 meeting now stand at almost 20 percent, according to Bloomberg calculations based on trading in overnight index swaps. The odds of a rate cut were as low as 3 percent a month ago.

"We’ve not yet gone over the threshold where they’ll cut again in the next meeting, but I think it’s becoming a very close call," said Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada in London. "Weakening demand in China is a clear impact on oil prices; oil prices move globally and that has a direct impact on Canada’s exports and the capital spending plans of the companies doing the exporting."

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell 0.1 percent to C$1.4090 per U.S. dollar at 9 a.m. in Toronto. Earlier it fell 0.7 percent to C$1.4170, the lowest since July 2003. One loonie now buys 70.96 U.S. cents.

In a speech Thursday morning, Bank of Canada Governor Stephen Poloz said he is prepared to deploy “unconventional” tools if needed to curb lingering damage from a slide in oil and other commodity prices, adding the loonie’s drop is no surprise given the fall in oil prices.

Canadian stocks, meanwhile, may enter a bear market decline Thursday as global equities sell off in the wake of the Chinese move to halt trading. A drop of about 200 points in the Standard & Poor’s/TSX Composite Index would push the gauge into a bear market, defined as a 20 percent decline from its 2014 peak.

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