Loonie falls ahead of Bank of Canada's interest rate announcement

By Linda Nguyen, The Canadian Press

TORONTO - The Canadian dollar fell Tuesday, a day before the Bank of Canada makes its latest announcement on interest rates.

The loonie was off 0.18 of a cent at 91.14 cents U.S.

Few expect the central bank to announce a change in its trend-setting rate Wednesday, but investors will be keen to see what hints, if any, it gives about the future direction of interest rates.

The Canadian dollar has been falling recently amid the bank's dovish tone on rates, along with disappointing trade and employment data.

Meanwhile, the greenback has gained strength on an improving economy south of the border and a decision by the U.S. Federal Reserve to cut its bond purchases by $10 billion a month to $75 billion.

"I'm trying to think of factors where the loonie will move back up and I can't think of them," said Ian Nakamoto, director of research for 3MACS.

"The U.S. economy is growing at a stronger pace than Canada and they are doing away with stimulus and we're sort of neutral," he said.

"In many ways, even the BoC and (Finance Minister Jim) Flaherty, they don't mind a weaker Canadian dollar because the economy has got to get going here."

A weaker dollar tends to make Canadian exports more competitive.

It has been a tough month so far for the loonie, which is down more than 2 1/2 cents US from the end of 2013, falling near levels that haven't been seen in more than four years.

Markets had been uneasy on Monday with data suggesting that China's fourth-quarter growth declined slightly was the world's second-largest economy reported that its annualized growth rate was 7.7 per cent in the fourth quarter, down from the previous quarter's 7.8 per cent.

Confidence rebounded after the Chinese central bank promised to inject extra liquidity into its financial system.

The February crude oil contract moved up 62 cents to US$94.99 a barrel, while March copper was ahead a penny at US$3.35 a pound.

However, gold took back some of Monday's gains as February bullion dropped $10.10 to US$1,241.80 an ounce on the New York Mercantile Exchange.

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