Canadian dollar ends near flat after GDP data shows contraction

Wed Oct 31, 2012 5:17pm EDT
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By Andrea Hopkins

TORONTO (Reuters) - The Canadian dollar weakened below parity against the U.S. currency before clawing back to end little changed on Wednesday after data showed the Canadian economy contracted unexpectedly in August.

The currency weakened to a session low shortly after the gross domestic product data pointed to slower growth in the third quarter and supported the Bank of Canada's message that interest rate hikes are not imminent. It later pared those losses.

"We are pretty much ending unchanged from where we started the day, but we saw a 50-point range and that's the largest we've seen in a week," said Dave Bradley, director of foreign exchange trading at Scotiabank.

The Canadian dollar ended the North American session at C$0.9990 to the greenback, or $1.0010, compared with C$0.9993, or $1.0007, at Tuesday's close.

Bradley said the market was still suffering from poor liquidity due to the absence of many U.S. traders recovering from monster storm Sandy.

"Despite the U.S. equity markets opening again, a lot of New York based participants are out of the market ... I think liquidity and general flow is at a minimum," Bradley said.

With October 31 marking the end of the financial reporting year for Canadian banks, Bradley noted the Canadian currency was virtually unchanged from a year ago within a few basis points of parity.

Mark Chandler, head of Canadian fixed income and currency strategy at Royal Bank of Canada, said the currency could be weighed down by the August GDP numbers, which showed a 0.1 percent contraction, through to the end of the week.   Continued...