The Canadian dollar dipped below 79 cents today amid worries about falling oil prices and the Bank of Canada’s dovish monetary policies.

The loonie was as low as 78.76 U.S. cents Wednesday, before recovering at the close to 79.13 US, a drop of 0.31 of a cent. All predictions were that it soon would be driven lower.

Oil was wiping out the gains it made at the end of last week, with West Texas Intermediate oil falling 65 cents to $49.37 US a barrel. Brent crude dropped $1.32 to $55.11 US.

Oil and a rise in the U.S. dollar are putting pressure on the Canadian currency, says a note from BMO economist Doug Porter on Wednesday

But the difference between the Canadian central bank’s monetary policy and the more hawkish tone set in the U.S. is also driving the dollar down, he said.

“The loonie will remain in crash position,” Porter said, as long as there is a chance the Bank of Canada may be cutting rates again in June, just as the U.S. Fed is moving its benchmark rates upwards for the first time since 2010.

BMO said it is not forecasting a rate cut in June, just flagging that there is “non-zero chance” of one.

That’s unlike rival TD Bank, which has said it believes the Bank of Canada will cut rates again as soon as March.

A lack of guidance on rates from the central bank is creating some of the uncertainty, as well as comments from both the governor and bank, and his deputy on Tuesday.

Economist says Poloz 's talk has implications

Bank of Canada governor Stephen Poloz, speaking at the G20 in Istanbul, said he “rejected the notion” that he was talking the dollar down and spoke of the downturn in the Canadian economy.

But Porter points to real GDP growth of 2.5 per cent over the last six quarters, a stellar performance given the pain in the rest of the world.

He said the yield on Canadian two-year bonds fell Tuesday in response to Poloz’s remarks. Poloz's protestation that he’s not trying to push down the loonie has the effect of drawing attention to his dovish policies, including the surprise rate cut in January.

Deputy governor Carolyn Wilkins's remarks about the amount of slack in the labour market reinforced the idea that a rate cut might be imminent.

Meanwhile, U.S. job creation has picked up, making it more likely that the Fed will go ahead with a rate hike in the spring.

Camilla Sutton, chief currency strategist, Bank of Nova Scotia, said she believes the Bank of Canada will have finished lowering its rates by the time Fed decides to hike rates.

But everything points to weaker dollar in the near term, she said in an interview with The Exchange with Amanda Lang.

The Bank of Canada's monetary policy is playing a role, she said.

"We have growth that’s lower than they want, we have employment that’s lower than they want, we have a shock to the economy overall [falling oil prices] and the reaction is quite reactionary They cut rates once, it looks like they’ll cut rates again unless we see an uptick in oil prices," she said.