• Higher chance of BOC rate cut than market pricing in: Osborne
  • Loonie set to weaken gradually, according to Macquarie’s Doyle

The Canadian dollar is poised to extend its four-month slump as the U.S. Federal Reserve prepares to tighten monetary policy further, while the chances of an interest-rate cut in Canada increase, according to analysts at Bank of Nova Scotia and Macquarie Capital Markets.

While neither Scotia’s Shaun Osborne nor Macquarie’s David Doyle expect the Bank of Canada to lower its interest rate in the near-term, both said they aren’t discounting the possibility entirely. The two were speaking at the Bloomberg Canadian Fixed Income Conference in New York.

The loonie has weakened in recent days after the BOC said last week that risks to inflation had “tilted somewhat to the downside” and called into question its long-standing view that exports, particularly in non-commodity industries, would lead the country out of its economic malaise.

By acknowledging the risks to the nation’s economy, the BOC is prompting traders to bet on the increasing divergence in monetary-policy outlooks between Canada and the U.S., where Fed policy makers are debating the timing of their next rate increase.

“Gradually over time you’ll see this policy divergence take place and manifest itself in this yield differential,” Doyle said.

The Canadian dollar fell 1 percent to C$1.3169 per U.S. dollar at 11:16 a.m. in Toronto, reaching the weakest level since Aug. 9. The currency extended its loss this quarter to 1.8 percent, the worst performance among Group-of-10 peers.

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