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Updated: Wed, 19 Mar 2014 12:25:27 GMT | By Malcolm Morrison, The Canadian Press, thecanadianpress.com

Loonie lower on BoC governor's rate comments

TORONTO - The Canadian dollar fell heavily for a second day Wednesday after Bank of Canada governor Stephen Poloz struck a decidedly dovish tone on interest rates.


TORONTO - The Canadian dollar fell heavily for a second day Wednesday after Bank of Canada governor Stephen Poloz struck a decidedly dovish tone on interest rates.

Markets also absorbed the news that Joe Oliver — who had been natural resources minister — will replace Jim Flaherty as finance minister. Flaherty, who had held the post since the Harper government came to power, said Tuesday that he's returning to the private sector.

The loonie dropped 0.4 of a cent to 89.39 cents US Wednesday after tumbling 0.68 of a cent on Tuesday as Poloz said that slower than normal growth may be the new norm. He said in a speech to a business audience that will require central bankers to keep interest rates low for longer than they would have in the past.

And in a question and answer session, he added that a rate cut by the Bank of Canada could not be ruled out..

Meanwhile, an economic forecast released by Royal Bank says the loonie will trade at about 87 cents US by the end of this year and dip to 85 cents by the end of 2015.

RBC is also predicting that economic growth should hit 2.5 per cent this year, despite a weak start to 2014 caused by severe winter weather, with growth picking up to 2.7 per cent in 2015.

That’s slightly stronger than the Bank of Canada’s call for 2.5 per cent growth in both years.

Traders also looked to the outcome of the interest rate meeting of the U.S. Federal Reserve.

Markets widely anticipate the Fed will announce that it deems the economy strong enough to further cut its monthly bond purchases by another US$10 billion to $55 billion.

It is further expected that the U.S. central bank will put less emphasis on the importance of the jobless rate figure as a policy guide for determining when the Fed might hike interest rates.

Finally, traders want to hear the Fed's take on how much damage was inflicted on the economy by severe winter weather in January and February.

Markets also monitored geopolitical developments a day after Russian President Vladimir Putin said his country doesn't want to annex more of Ukraine. He made the comment as he signed a bill to annex Crimea after the territory's residents voted overwhelmingly to break away from Ukraine.

Western governments, including Canada, have responded with sanctions that target a variety of people in Russia, Ukraine and Crimea.

On the commodity markets, April crude on the New York Mercantile Exchange edged seven cents higher to US$99.77 a barrel.

Optimism that the Ukraine crisis won't worsen pushed gold prices down for a third day. April bullion faded $19.40 to US$1,339.60 an ounce.

Copper also retreated with the May contract in New York down seven cents to US$2.88 a pound.

Worries about China have sent copper prices reeling, falling over 10 per cent since Mar. 6. in the wake of tepid economic data, while the base metals sector has dropped over six per cent this month.

It's not just demand concerns that have weighed on copper — China's first-ever credit default occurred earlier this month. Copper is used as much for financing transactions as for its industrial applications. Traders worry that a wave of defaults could result in a massive selloff of copper on the markets, which would further depress prices.

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