The Canadian dollar exchange traded fund took another hit Wednesday, with the loonie weakening to a three-year low against the greenback, as the Bank of Canada kept rates unchanged but left room for further cuts.
The CurrencyShares Canadian Dollar Trust (NYSEArca: FXC) dipped 0.4% Wednesday. FXC has declined 2.1% over the past month and is down 6.6% year-to-date.
The Bank of Canada kept rates unchanged at 1% after pointing to the increased possibility of disinflation, with inflation rates dropping to 0.7% in October, Reuters reports.
“The risks associated with elevated household imbalances have not materially changed, while the downside risks to inflation appear to be greater,” the central bank said.
The Canadian dollar appreciated 0.4% against the U.S. dollar Wednesday after the announcement, trading around C$1.0695 to the USD.
“This is clearly a more dovish statement,” Avery Shenfeld, CIBC World Markets chief economist in Toronto, said in a Bloomberg article. “This may be part of a deliberate attempt to ease through the exchange rate.”
Scotiabank Chief Currency Strategist Camilla Sutton believes that concerns over Canada’s indebtedness, particularly in housing purchases, would keep the central bank from raising rates and putting a burden on the economy. [Canadian Dollar ETF Weakens After IMF Sees Low Rates Until 2015]
“It’s unlikely the Bank of Canada would be able to cut rates when they have household debt as high or financial stability risk as high as it is,” Sutton said in the article.
The central bank expects the Canadian economy to return to full capacity by the end of 2015.
The iShares MSCI Canada (NYSEArca: EWC), which tracks Canadian stocks, has only gained 2.2% year-to-date. Since the fund tracks Canadian-dollar denominated stocks, investors are exposed to currency risk, and the depreciating loonie has weighed on EWC’s returns.
CurrencyShares Canadian Dollar Trust
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