20.03.201405:13:09UTC+00Canadian Dollar Slumps to Weakest Since 2009

The Canadian dollar diminished to its weakest mark in four and a half years after the Federal Reserve boosted its interest rate projections, firing up speculation it will tighten financial policy in a more rapid pace than the Bank of Canada.

The currency slide lower versus the majority of its most-exchanged counterparts after Bank of Canada Governor Stephen Poloz said yesterday he wouldn’t rule out the feasibility of rate trims if the economy deteriorates. Fed officials assumed their interest rate goal would be 1 percent at the end of 2015 and 2.25 percent a year later, greater than previously projected, as they en chance estimates for hikes in the labor market.

“CAD was sort of under pressure for the last 48 hours and the little jump in U.S. yields coming after the Fed meeting has helped push us through what was a key resistance level,” said Greg Anderson, head of global foreign exchange strategy at Bank of Montreal, by phone from New York. “Poloz said yesterday that he could not entirely rule out a rate cut and I guess that gives you in the forward guidance a little more dovish Bank of Canada than Fed.”

The loonie, the Canadian Dollar's nickname from the image of the aquatic bird on the C$1 coin, relinquished 0.9 percent to C$1.1238 per U.S. dollar at 4:39 p.m. in Toronto, hitting the weakest mark since July 2009. One loonie purchases 88.98 U.S. cents.

Bonds Decline

Canada’s benchmark 10-year government bond sags down, with yields surging seven basis points, or 0.07 percentage point, to 2.48 percent, the topmost mark in a week. The 2.5 percent security maturing in June 2024 relinquished 65 cents to C$100.22.

Yields on the U.S. 10-year benchmark Treasury also reached a week high, soaring 10 basis points to 2.77 percent.

Canada auctioned C$3.3 billion ($2.9 billion) of two-year bonds at 1.042 percent. The debt brings a 1 percent coupon and matures in May 2016. The bid-to-cover ratio, a gauge of investor demand, was 2.69, greater than the past two-year auction in January.

The Fed also slowed its financial stimulus program made to depress interest rates by trimming down bond purchases by $10 billion to $55 billion per month.

The loonie added to declines after Fed Chair Janet Yellen reiterated in a press conference that the first hike to the standard interest rate would come a “considerable time” after the projection end to financial stimulus this fall, adding that could mean “six months or that type of thing.”

The Federal Open Market Committee dismissed an unemployment-rate threshold for considering when to boost borrowing costs and stated that it will look at a bigger scope of data after unemployment slide lower toward 6.5 percent, its previous threshold for a rate hike, faster than policy makers assumed.

Poloz’s remarks yesterday came after a speech where he said first-quarter economic growth may be a bit “softer” than projection in January due to severe winter weather, and that the global economy may experience a “secular stagnation” that holds down output surges and interest rates.