Canadian dollar dips on data; Canada tightens mortgage rules

Thu Jun 21, 2012 11:58am EDT
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By Jennifer Kwan

TORONTO (Reuters) - Canada's dollar weakened slightly against its U.S. counterpart on Thursday on investor concerns about global growth and domestic data that showed a surprise drop in retail sales in April.

In another sign that Canadian second quarter growth could be unimpressive, retail sales in April posted a surprise 0.5 percent drop from March on general weakness. Analysts had predicted a 0.3 percent month-on-month increase.

"That's negative in terms of how it flows into GDP," said Camilla Sutton, chief currency strategist at Scotiabank.

Also in the spotlight, the Canadian government tightened rules for mortgages and household borrowing on Thursday to make it harder for home buyers and homeowners to take on massive debt in an attempt to cool the still hot domestic housing market.

While the news is generally positive, the move could put downward pressure on the Canadian dollar as it might take pressure off the Bank of Canada to move quickly on interest rates, said Sutton.

"From our perspective, it dampens the housing market. The positive side is that it dampens it as opposed to crushing a bubble that is allowed to just form year after year after year. Having a slow decline is much better than having a complete meltdown when a bubble is burst," she said.

"It takes some of the pressure off the Bank of Canada," she added.

Earlier this month, the Bank of Canada continued to signal it might have to raise interest rates, but it softened its recent hawkish language a bit in reaction to a sharp deterioration in global financial conditions sparked by renewed fears about Europe.   Continued...

A general view of the Bank of Canada building in Ottawa July 21, 2009. REUTERS/Blair Gable