SYDNEY/TOKYO (Reuters) – The Canadian dollar slid to 4 1/2-year lows on Thursday after the Bank of Canada said the currency’s depreciation should help exports, while the Australian dollar weakened following a disappointing survey of Chinese manufacturers.
In contrast, sterling took off after a surprisingly big fall in the UK jobless rate prompted investors to price in an earlier start to rate hikes in Britain.
The loonie, as the Canadian dollar is known, fell to C$1.1139 per U.S. dollar, bringing its decline this year to nearly 5 percent and trading at its lowest level since July 2009.
The pound gained even more, jumping to its highest since mid-2009 at C$1.8450. Sterling was on a tear after data showed a UK unemployment fell to 7.1 percent, just a fraction above the 7 percent threshold level for the Bank of England to start considering raising rates.
In contrast, the Bank of Canada took a leaf out of the Reserve Bank of Australia’s (RBA) play book and tried to talk down the loonie, saying in its Monetary Policy Report that a still strong currency posed an obstacle to exports.
Although the central bank stopped short of saying its next move is likely to be a rate cut, it also said it had become more concerned about weak inflation.
“It seems as though Governor Stephen Poloz may revert back to the BOC’s easing cycle as the persistent slack in the real economy continues to drag on price growth,” said David Song, analyst at DailyFX.
“At the same time, the BOC made it increasingly clear that a further depreciation in the Canadian dollar should further assist with the rebalancing of the real economy.”
That echoes the RBA which spent much of last year complaining about the strength of the Australian dollar. Its efforts played a part in a 14-percent slide in the currency in 2013.
Although the Aussie appeared to have found a good support below 88 U.S. cents after surprisingly robust inflation at home on Wednesday, it took a fresh beating by following a survey which suggested demand for Australian exports from China could be subdued.
The Aussie dropped 0.6 percent to $0.8789, near 3 1/2-year low of $0.8756 hit on Monday, as the flash reading of Markit/HSBC Purchasing Managers’ Index (PMI) for China fell to 49.6 in January from December’s final reading of 50.5.
Other major currencies were trapped in familiar ranges overnight amid a lack of fresh impetus in the lead up to the Fed’s January 28-29 policy meeting.
There is talk the U.S. central bank will further reduce its bond-buying program as the world’s biggest economy continued to recover.
Such an outcome should provide a floor for the U.S. dollar, which firmed slightly against a basket of major currencies .DXY to be near a two-month peak set on Tuesday.
The euro eased to $1.3547, not far from a two-month trough of $1.3508 plumbed on Monday. Against the yen, the common currency was little changed at 141.63, while the dollar edged up to 104.55.
On Wednesday, the Bank of Japan dismissed the need for additional monetary easing, dampening expectations for more stimulus to offset the impact of a sales tax rise in April.
“Judging from BOJ Governor Kuroda’s comments yesterday, another easing is almost unthinkable, at least this quarter,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank in Tokyo.
“Without additional factors, the dollar is unlikely to rise far beyond 105 yen,” she added.
(Editing by Chris Reese and Simon Cameron-Moore)
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