02/11/2015 08:33 EST | Updated 04/13/2015 05:59 EDT

Loonie down: as oil falls, Greece meets with creditors, rate cut talk increases

TORONTO - Aversion to risk, lower commodity prices and growing speculation the Bank of Canada will again cut interest rates next month weighed on the Canadian dollar Wednesday.

The loonie fell 0.42 of a cent to 79.11 cents US.

Traders looked to the outcome of a meeting Wednesday of eurozone finance ministers to discuss Greece's appeal for debt relief.

The meeting will be the group's first opportunity to hear directly from the new anti-austerity Greek government. Greece wants to renegotiate the terms of its international bailout ahead of the expiration of the current agreement in late February.

On the eve of the meeting, Prime Minister Alexis Tsipras said there is "no way back" for his government in its quest to rewrite the bailout terms.

It's an uphill battle, however, as the biggest and most influential creditor, Germany, has taken a hard line on the talks.

Oil prices were lower in the wake of a tumble of almost US$3 on Tuesday as traders speculate on whether oil prices established a bottom when they recently hit US$44 a barrel. Oil prices are at six-year lows, down 50 per cent from the highs of last summer amid a huge supply/demand imbalance on global markets.

However, there is little evidence that global oil production levels have shown any decline. In fact, data from last week showed U.S. inventories at 80-year highs.

The latest data from the U.S. Department of Energy shows that supplies increased by another 4.9 million barrels last week, higher than the four million that analysts expected.

The March crude contract in New York dropped $1.18 to US$48.84 a barrel.

The April gold contract in New York shed early gains and moved down $12.60 to US$1,219.60 an ounce.

March copper slipped one cent to US$2.54 a pound.

The decline in the loonie follows a drop of more than two-thirds of a U.S. cent on Tuesday. Part of the reason was a slide in commodity prices. But there has also been increasing speculation that the Bank of Canada will do another interest rate cut as early as next month to limit damage from the recent plunge in oil prices.

"The economic outlook from the perspective of the bank is one that likely justifies further interest rate cuts," said Camilla Sutton, chief FX strategist, managing director, Scotiabank Global Banking and Markets.

"The market is pricing in a 50 per cent chance of a cut at the March 4th meeting. As oil comes under renewed pressure we would expect both the expectations for interest rate cuts in Canada to increase and (for the) Canadian dollar to weaken."

The bank cut its key overnight rate by a quarter point to 0.75 per cent at its last interest rate meeting in January.