A man takes a photograph of exchange rates in front of an exchange point in Cairo, Egypt. Reuters

Commodity currencies slid to multi-week lows on Wednesday on weakening raw material prices, with the heaviest selling against the yen which surged to its highest in two months as short sellers bailed out ahead of next week’s central bank meeting.

The Canadian dollar hit a three-month low of C$1.38 per dollar, ahead of a likely second rate cut in as many months by the Bank of Canada at its meeting later in the day.

Canada’s economic growth has been lackluster this year, and some fear that high interest rates and rising unemployment could trigger a recession, even as some concerns persist that rapid rate cuts could stoke renewed inflation.

The Australian dollar fell as much as 0.5 per cent at $0.6583 was only a few pips from chart support at the early June low. It fell more than 1 per cent on the yen to 101.79 yen and is down nearly 7 per cent against the Japanese currency in two weeks.

The New Zealand dollar fell 0.6 per cent to a near three-month low of $0.5914.

The moves tracked falling prices for industrial metals such as iron ore and copper, which made 3-1/2 month lows on a gloomy outlook for Chinese demand, and risk aversion in stock markets following some disappointing US earnings.

“We’re seeing softer demand in China and Asia in general and the kiwi and Aussie just being pulled down,” said Jason Wong, senior markets strategist at BNZ in Wellington.

The euro suffered after soft business activity dataand was last down 0.1 per cent against the dollar at $1.10842 and fell 0.14 per cent on the pound to 83.99 pence as the picture looked perkier in Britain..

But the European common currency continued to climb against peers to the north, and hit a new eight-month top on the Norwegian crown of 12.00 crowns and a two-month high of 11.727 on the Swedish crown.

“These are the two least liquid currencies in G10, and we suspect markets are particularly punishing this aspect and rebuilding those shorts that had been trimmed throughout May and June,” said Francesco Pesole FX strategist at ING.

In Asia, the risk of a rate hike for Japan and recent rounds of suspected currency intervention have speculators rushing to close what had been profitable “carry” trades funded in yen. The Bank of Japan reviews policy next Tuesday and Wednesday.

In a carry trade investors borrow in a low-yielding currency to invest in higher-yielding assets denominated other currencies.

Dollar/yen went down nearly 1 per cent on Tuesday and fell another 0.7 per cent on Wednesday to its lowest since mid-May at 154.28 per dollar. The yen is the best performing G10 currency against the dollar in July so far.

Moves in other pairs have been larger, with the euro dropping 1.3 per cent on the yen Tuesday and a further 0.86% to an 11-week low of 167.43 on Wednesday.

Mexico’s high-yielding peso dropped 2 per cent on the yen on Tuesday and another 1.1 per cent on Wednesday.

The churn in yen funded carry trades also had an effect on the other favoured funding currency, the Swiss franc, against which the dollar was down 0.43 per cent at 0.8875 francs and the euro was down 0.57 per cent at 0.9620.

Later in the week, markets are waiting on US GDP and core PCE data to test expectations for two US rate cuts over the rest of this year.

Meanwhile the Bank of Canada (BoC) is widely expected to trim its key overnight rate by 25 basis points on Wednesday amid slowing inflation, a weak job market and tepid economic growth, economists and analysts said.

This will be the second cut in as many months after the central bank became the first amongst G7 nations to reduce its policy rate last month when it lowered it to 4.75 per cent. The rate had been at a two-decade high of 5 per cent for almost a year.

“Weak economic growth is giving the Bank of Canada confidence that inflation is heading lower,” said Brooke Thackray, research analyst with Global X, a fund management company.

“It’s almost more about why wait, why not go forward with it (rate cut) at this stage,” said Dawn Desjardins, chief economist at Deloitte Canada, adding calls for a cut have been boosted by a softening economy.

A Reuters poll released on Friday showed nearly three-quarters of economists surveyed from July 16 to July 19 expected a cut in policy rate to 4.50 per cent this week, and money markets see an almost 90 per cent chance of a cut.

Inflation slowed more than expected to 2.7 per cent in June - with BoC’s closely tracked core inflation measures also easing marginally. Although still hovering near the top of the BoC’s target range of 1 per cent-3 per cent, inflation has held below 3 per cent this year.

Thackray cautioned that a cut of more than 25 basis points however, could trigger inflation.