Canada dollar marks worst week since May

Fri Oct 19, 2012 4:38pm EDT
 
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By Claire Sibonney

TORONTO (Reuters) - The Canadian dollar dropped near a two-month low on Friday and marked its worst weekly performance since May on growing expectations that the Bank of Canada will sound more dovish when it sets interest rates next week.

Prices in Canada remained tame in September with inflation at 1.2 percent, unchanged from August. The absence of inflation pressure could set the stage for the central bank to ease its hawkish bias when it holds its next policy meeting on Tuesday.

"A lot of traders were readjusting their expectations this morning," said Mark Frey, chief market strategist at Cambridge Mercantile Group, in Victoria, British Columbia.

Higher interest rates tend to help a country's currency appreciate because they often attract international capital flows and vice versa.

Canada's risk-related currency was also vulnerable to the perceived lack of progress on a Spanish bailout request, which reminded investors of the headwinds facing the global economy.

"Today's data aside, the overall macro environment and risk with respect to equities and commodities is what drives the Canadian dollar nine days out of 10," added Frey.

The Canadian dollar ended the North American session at C$0.9932 to the greenback, or $1.0068, compared with C$0.9849, or $1.0153, at Thursday's close.

The currency hit an intraday low of C$0.9939, or $1.0061, its weakest level since August 24. It marked the biggest one-day drop in four months.   Continued...

 
Canadian one hundred dollar bills are displayed in this posed photograph in Toronto, October 22, 2008. REUTERS/Mark Blinch