By Fergal Smith
TORONTO (Reuters) – The Canadian dollar weakened to an 11-week low against its U.S. counterpart on Wednesday as the Bank of Canada cut interest rates by an unusually large amount and the greenback added to its recent broad-based gains.
The loonie was trading 0.2% lower at 1.3840 to the U.S. dollar, or 72.25 U.S. cents, after touching its weakest intraday level since Aug. 5 at 1.3862.
“The Canadian dollar is suffering from two things,” said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC. “One is a strong U.S. dollar and the second thing is among the most aggressive central banks in the world.”
The BoC reduced its benchmark rate by 50 basis points to 3.75% as expected and hailed signs Canada has returned to a low-inflation era. It was the first cut of that size in 15 years outside of the pandemic era and increased the amount of easing since June to 125 basis points.
“I think the Bank of Canada delivered a dovish cut,” Chandler said, adding that BoC Governor Tiff Macklem made clear that if the economy evolves as the bank thinks then further easing is coming.
Investors are betting that the policy rate will be lowered below the top of the 2.25%-3.25% range that the BoC sees as the neutral setting as soon as January.
The U.S. dollar notched its 16th gain in 18 sessions against a basket of major currencies after a run of positive economic data that has dampened expectations about the pace of Federal Reserve rate cuts.
The price of oil, one of Canada’s major exports, fell 1.7% to $70.51 a barrel after data showed U.S. crude inventories rose more than expected.
The Canadian 10-year yield was up half a basis point at 3.240% as U.S. Treasury yields extended their recent move higher.
(Reporting by Fergal Smith; Editing by Richard Chang)