Canadian Dollar Falls to 11-Year Low on Interest Rates Diverging

  • Forecasters say Fed may usher in Canadian yield disadvantage
  • Oil tumbles after U.S. inventories increase, crimping exports

The Canadian dollar fell to its weakest in more than a decade as the Federal Reserve raised interest rates for the first time in almost as long, cementing the yield advantage U.S. Treasuries hold over the bonds of their northern neighbor.

The low, reached even before the Fed released its decision Wednesday, was touched as expectations for the move dovetailed with a sudden decline in the price of oil, until this year Canada’s biggest export, after data showed U.S. crude inventories climbed to the highest level for this time of year since 1930.

Forecasters project more U.S. central bank rate increases next year while they expect the Bank of Canada to keep its own rate at 0.5 percent through to 2017. That would give the U.S. its biggest interest-rate advantage over Canada since the mid-2000s, data compiled by Bloomberg show.

“We do have some monetary policy divergences between the Fed and the Bank of Canada,” Bipan Rai, director of foreign exchange and macro strategy at Canadian Imperial Bank of Commerce, said by phone from Toronto. “This should keep the loonie on the defensive, especially if we continue to get weaker domestic data.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, was down 0.5 percent after the decision at C$1.3805 per U.S. dollar as of 3:17 p.m. in Toronto. One loonie buys 72.45 U.S. cents. Earlier, it fell as much as 0.8 percent to C$1.3848 per U.S. dollar, the lowest point since May 2004.

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