Canadian dollar slides on soft Canadian GDP, U.S. dollar flows

Fri Oct 31, 2014 4:52pm EDT
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By Solarina Ho

TORONTO (Reuters) - The Canadian dollar dropped to its weakest level in more than a week against its U.S. counterpart on Friday after data showed the country's economy unexpectedly shrank in August for the first time in eight months.

The currency's weaker tone was set overnight after the Bank of Japan shocked financial markets around the world by expanding its massive stimulus spending. The move sent the yen JPY= plunging to a near seven-year low against the U.S. dollar.

Meanwhile, inflation data in the euro zone reinforced the view that the European Central Bank would hold off on any policy action at its meeting next week.

"What happened in Japan overnight and Europe (caused) a significant flow to the U.S. dollar, which Canada wasn't able to keep up with. It started us off on the wrong foot overnight," said Ken Wills, currency strategist and broker at CanadianForex.

U.S. data showed the pace of business activity growth accelerated more than expected this month, which furthered the flow into U.S. dollars, Wills said.

The Canadian dollar CAD=D4 finished the week at C$1.1271 to the greenback, or 88.72 U.S. cents, significantly softer than Thursday's close of C$1.1196, or 89.32 U.S. cents.

At one point during the session, the loonie, which was underperforming most of its counterparts, weakened to C$1.1332, or 88.25 U.S. cents.

Wills said there was still room for further Canadian dollar weakness, however, he did not anticipate the currency to break the C$1.1385 level.   Continued...

The new Canadian five and 10 dollar bills, made of polymer, are displayed following an unveiling ceremony at the Bank of Canada in Ottawa April 30, 2013.     REUTERS/Chris Wattie