The Canadian dollar on Friday slipped to its weakest close in 5-1/2 years against the greenback, which hit 11-year highs against a basket of other major currencies as central bank policies around the world diverged sharply from those of the Federal Reserve.
US crude prices , an influential driver for the oil-sensitive Canadian dollar, also fell on data that showed US crude stockpiles in Cushing, Oklahoma, rose 2.7 million barrels in the week ending Tuesday and reports of a partial shutdown at a BP oil refinery in Whiting, Indiana. Canada is a significant crude exporter.
The US dollar's strength follows the European Central Bank's announcement on Thursday that it would pump a trillion euros into the region's economy to revive weak growth and ward off deflation. The ECB's move came after the Bank of Canada stunned financial markets on Wednesday with a wholly unexpected 25 basis-point interest rate cut to 0.75 percent. In contrast, the Fed remains on track to hike US interest rates sometimes this year on the back of a robust US economy.
"I expect the Canadian dollar will continue to lose some ground, especially given the fact that US metrics have been fairly positive," said Lennon Sweeting, a currency Strategist with USForex in Toronto. The Canadian dollar ended the session at C$1.2424 to the greenback, or 80.49 US cents, its weakest finish since April 2009, and weaker than Thursday's close of C$1.2404, or 80.62 US cents.
Sweeting said the Canadian dollar's current level was good for exports and the overall economy, and said the next key resistance level would be around C$1.27 versus the US dollar. The currency, battered by this week's shock rate cut, was stronger overnight but then briefly weakened to a 5-1/2-year low after data showed Canada's annual inflation rate in December dropped to 1.5 percent from 2.0 percent, a nine-month low. Retail sales for November unexpectedly rose 0.4 percent to a record C$43.03 billion, helped by sales of new electronics products. Analysts had, on average, expected a decline of 0.2 percent.
"This is close enough to what people were looking for and more generally, I think everyone's still in shock after the Bank of Canada move," said David Tulk, chief Canada macro strategist at TD Securities. Canadian government bond prices were mixed across the maturity curve, but the two-year was up 1.5 Canadian cents yielding 0.542 percent and the benchmark 10-year added 88.6 Canadian cents to yield 1.444 percent.