C$ slips as US$ firms on ECB comments

TORONTO: The Canadian dollar retreated on Thursday against the greenback, which strengthened following comments by the European Central Bank that underscored the strength of the US economy compared with those of other countries.

The European Central Bank raised its economic growth forecasts on Thursday but cut its inflation projection for 2015 to zero, reflecting the impact of last year's sharp drop in oil prices and euro weakness.

The loonie had strengthened sharply in the previous session after the Bank of Canada kept interest rates steady and indicated that it was happy with how the market and the economy reacted to its surprise 25 basis point interest rate cut in January.

"The broader US dollar impetus, certainly after the initial comments from the ECB, are certainly putting a topside spin on USD/CAD," said Jeremy Stretch, head of foreign exchange strategy with CIBC World Markets in London.

"It does suggest that even if the Bank of Canada is slightly more reticent of ... more monetary easing, I think it's still a case of still looking to buy the dips on USD/CAD."

At 9:31 a.m. (1431 GMT), the Canadian dollar was at C$1.2466 to the greenback, or 80.22 US cents, weaker than Wednesday's close of C$1.2416, or 80.54 US cents.

Most currency strategists are still forecasting a weaker Canadian dollar because of expectations of low oil prices in the months ahead, according to a Reuters poll this week. Oil is a key Canadian export.

Stretch said the trajectory of the USD/CAD moves might be a little slower without the uncertainty surrounding the Bank of Canada and more reliant on crude prices and expectations for the timing of the US Federal Reserve's next rate hike.

Markets will be eyeing comments later on Thursday from Federal Reserve Bank of San Francisco President John Williams and US employment data for February on Friday for further direction. In Canada, data for the country's trade balance in January will also be in focus on Friday.

Canadian government bond prices were mostly higher across the maturity curve, with the two-year down 2 Canadian cents to yield 0.615 percent and the benchmark 10-year was off 10 Canadian cents to yield 1.516 percent.