CANADA FX DEBT-Canadian dollar hits 18-month low as global economic worries rise

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By Fergal Smith

TORONTO, May 12 (Reuters) – The Canadian dollar extended recent declines against its U.S. counterpart on Thursday as investors grew more worried about the global economy and the Bank of Canada played down prospects of interest rates rising by more than half a percentage point in any one move.

The loonie CAD= was trading 0.6% lower at 1.3070 to the greenback, or 76.51 U.S. cents, after touching its weakest level since November 2020 at 1.3076.

“The Canadian dollar is caught along with other commodity currencies in a risk-off loop,” said Rahim Madhavji, president at KnightsbridgeFX.com.

Wall Street extended recent declines as investors worried that persistently high inflation could provoke increasingly aggressive policy tightening by the Federal Reserve. nL2N2X42EI

“Everyone is trying to figure out how high is inflation really running … what is the Fed going to do and what are the longer-term prospects for the economy and oil prices,” Madhavji said.

The price of oil, one of Canada’s major exports, rose as recession fears were offset by supply concerns and geopolitical tensions in Europe. U.S. crude CLc1 prices settled 0.4% higher at $106.18 a barrel. nL2N2X403C

Meanwhile, Bank of Canada Deputy Governor Toni Gravelle said the Canadian central bank’s policy rate, at 1%, is “too stimulative” given soaring inflation and needs to return to more neutral levels “quickly.”

Still, it would not be easy to hike rates by 75 basis points in one go due to the unusually uncertain outlook, Gravelle added. nL2N2X41XB

Canadian government bond yields were lower across the curve, tracking the move in U.S. Treasuries. The 10-year CA10YT=RR hit its lowest level since May 2 at 2.888% before recovering slightly to 2.897%, down 10.7 basis points on the day.

(Reporting by Fergal Smith
Editing by Paul Simao)

((fergal.smith@thomsonreuters.com; +1 647 480 7446;))