Loonie lower, BoC in no rush to raise rates

TORONTO - The Canadian dollar fell almost two-thirds of a US cent Wednesday after the Bank of Canada lowered its economic estimates and said it will likely keep interest rates where they've been longer than previously thought.

The currency closed down 0.64 of a cent to 100.1 cents US after going as low as 99.96 cents US in the morning. The loonie hasn't closed below parity with the greenback since mid-November.

The central bank said the anticipated need to raise rates in the future is now less imminent.

The change in the guidance from last month likely means the Bank of Canada won't move to tighten borrowing costs until some time in 2014 or until it has more compelling evidence the Canadian economy is ready to re-engage.

Also, the bank’s policy-setting team says it significantly underestimated the weakness of the economy.

It has shaved three-tenths of a point off its projections for growth for both 2012 and 2013, to 1.9 per cent and 2.0 per cent respectively.

At the same time, the International Monetary Fund said Wednesday it now expects Canada’s economy will expand by a modest 1.8 per cent this year — two-tenths of a point weaker than it forecast three months ago — and by 2.3 per cent in 2014, off one-tenth of a point.

For the global economy as a whole, the international financial organization says growth will hit 3.5 per cent in 2013, slightly lower than its October forecast but still stronger than last year’s 3.2 per cent advance.

Commodities were lower while oil prices registered the biggest decline in about a month on reports that the amount of oil moving through a key pipeline to the Gulf Coast had been cut in half.

The February crude contract on the Nymex dropped $1.45, or 1.5 per cent, to US$95.23 per barrel.

Analysts say losses picked up in the early afternoon after reports surfaced that the Seaway pipeline, which takes crude from Cushing, Okla., to the Gulf Coast, was constrained and could only work at about half its 400,000 barrel-per-day capacity. That will likely mean growing supplies at Cushing, the trading hub for U.S. benchmark oil, and lower prices.

Last year, Enbridge and partner Enterprise Products Partners reversed the flow of the Seaway pipeline and earlier this month expanded its capacity from 150,000 to 400,000 barrels a day.

February gold bullion ticked $6.50 lower to US$1,686.70 an ounce while March copper shed two cents to US$3.69 a pound.

Meanwhile, the U.S. House of Representatives overwhelmingly passed a bill Wednesday to permit the government to borrow enough money to avoid a first-time default for at least four months.

Republicans backed away from their previous demand that any increase in the government’s borrowing cap be paired with an equivalent level of spending cuts, a condition that had cast a cloud of uncertainty over markets.

The measure now goes to the Senate for a vote in the next few days.