TORONTO - The Canadian dollar closed below parity with the greenback for the first time in more than two months Thursday in the wake of the Bank of Canada's signal that interest rate hikes are likely further off than previously thought.

The loonie declined 0.39 of a cent to 99.71 cents US on top of a drop of almost two-thirds of a cent Wednesday as the central bank kept its key rate at one per cent and lowered its economic estimates.

The bank has shaved three-tenths of a point off its projections for growth for both 2012 and 2013, to 1.9 per cent and 2.0 per cent respectively.

The change in the guidance likely means the Bank of Canada won’t move to tighten borrowing costs until some time in 2014.

However, it's not expected that this latest move below parity is anything but temporary.

Camilla Sutton, chief currency strategist at Scotia Capital, called the losses of the past couple of days a temporary repricing.

"The market has made some adjustments to their expectation in terms of the timing of the first rate hike in Canada," she said.

However, she noted that the Bank of Canada is still far more hawkish or more likely to hike rates than the U.S. Federal Reserve "and that’s supportive of the Canadian dollar."

She also said that the loonie will be supported by improving global growth and the favourable investor view of Canada.

"The flow should remain favourable into Canada this year and combined all together should create an environment where the dollar doesn’t rally to new highs but still rallies through parity and tests the highs we saw last year."

The loonie peaked last year close to 104 cents US.

There was good news from the world's second-biggest economy as China’s manufacturing crept higher in January to the fastest pace in two years. A preliminary version of HSBC’s monthly purchasing managers’ index rose for the fifth month in a row to 51.9 in January from 51.5 in December. Readings above 50 on the 100-point scale indicate an expansion.

The report is further evidence that China’s economy is undergoing a modest recovery from a downturn sparked by the 2008 world financial crisis.

Its economy expanded 7.9 per cent in the final quarter of last year, up from 7.4 per cent in the previous quarter. For all of 2012, the economy expanded 7.8 per cent, the slowest annual performance since the 1990s.

The Chinese data helped push oil prices higher.

The March crude contract on the New York Mercantile Exchange gained 72 cents to US$95.95 a barrel after falling $1.45 on Wednesday. The decline came after crude shipments through the Seaway pipeline from Cushing, Oklahoma, to refineries on the Gulf Coast had to be cut to less than half because of limited endpoint capacity.

Copper slipped one cent to US$3.68 a pound.

Gold bullion declined, with the February contract on the New York Mercantile Exchange down $16.80 to US$1,669.90 an ounce.

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  • Bank of Montreal Dollar - 1825

    Until the mid-19th century, Canada's future provinces used the "Canadian pound." Bit by bit, various jurisdictions began to switch to a metric system, and with it came the concept of the Canadian dollar. This Bank of Montreal-issued dollar bill is among the first bills called a dollar to have been printed.

  • Bank of Montreal Dollar - 1859

    Various banks printed their own currency until eventually the Bank of Montreal was charged with being the official issuer of the Canadian dollar, a practice that stayed in place until the Bank of Canada was created in the 1930s.

  • Bank of Toronto Dollar - 1859

    The Bank of Toronto (today known as TD Bank) was among many banks that issued Canadian dollars in the second half of the 19th century.

  • Ontario Bank Dollar - 1861

    Image courtesy of the Bank of Canada.

  • Province of Canada Dollar - 1866

    The province of Canada comprised Ontario and Quebec and existed from 1841 to 1867. It issued its own currency. Image courtesy of Bank of Canada.

  • Dominion of Canada Dollar - 1870

    With confederation in 1867, the first truly national Canadian dollar came into being. Image courtesy of the Bank of Canada.

  • Dominion of Canada Dollar - 1898

    Image courtesy of the Bank of Canada.

  • Dominion of Canada Dollar - 1911

    Image courtesy of the Bank of Canada.

  • Dominion of Canada Dollar - 1917

    Image courtesy of the Bank of Canada.

  • Dominion of Canada Dollar - 1923

    Image courtesy of the Bank of Canada.

  • Bank of Canada Dollar - 1935

    The Bank of Canada took over the issuance of currency from the Bank of Montreal when it was created in the 1930s. Image courtesy of the Bank of Canada.

  • Bank of Canada Dollar - 1937

    Image courtesy of the Bank of Canada.

  • Canada Dollar - 1954

    The 1954 dollar was the first to feature Queen Elizabeth II and the first to simply say "Canada" on it, rather than featuring the name of a bank, province or referring to the country as a "dominion."

  • Centennial Dollar - 1967

    Image courtesy of the Bank of Canada.

  • Canada Dollar - 1973

    This was the last paper dollar issued in Canada. It was in circulation until 1987, when the loonie replaced it. Image courtesy of the Bank of Canada.

  • The Loonie - 1987

    The loonie replaced the one-dollar bill in Canada in 1987. Image: CP

  • Canada 125 Loonie - 1992

    The Mint issued a special edition of the loonie in 1992 to commemorate the country's 125th birthday.

  • Vancouver Olympics Loonie - 2010

    An Inuit inukshuk graced the tail of this loonie issued in 2010 to coincide with the 2010 Winter Games in Vancouver.

  • The Loonie - Anniversary Special - 2012

    The Royal Canadian Mint issued a special-edition version of the loonie in 2012 to commemorate the coin's 25th anniversary. Image: Royal Canadian Mint.