By Commodity News Service Canada
WINNIPEG, Jan. 21 – The Canadian dollar plummeted on Wednesday, dropping more than one and half cents against the US dollar, just a day after falling a penny.
The main driving force was the unexpected announcement that the Bank of Canada is cutting key interest rates to 0.75 per cent, from its previous one per cent.
The Canadian dollar closed at US$0.8107 or US$1=C$1.2335 on Wednesday, which compares with Tuesday’s North American settlement of US$0.8260 or US$1=C$1.2107.
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The Bank of Canada also expects Canada’s real gross domestic product growth will slow to 1.5 per cent during the first half of 2015 due to falling oil prices, which was bearish for the loonie.
Recent soft Canadian manufacturing data, ongoing worries about slow global economic growth and weakness in gold values were also undermining the Canadian dollar.
However, oil prices rebounded on Wednesday, providing some support for the Canadian currency, traders said.
Canadian bonds saw very large gains on Wednesday, reacting to the unexpected interest rate cut by the Bank of Canada, market watchers said.
The two-year bond yielded 0.560% late Wednesday, from 0.858% late Tuesday. The 10-year bond yielded 1.219%, from 1.428%. Bond yields fall as their prices rise.
