Canadian dollar tumbles to seven-month low as soft data fuels rate cut bets

Fri Oct 21, 2016 4:45pm EDT
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By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened to a seven-month low against its U.S. counterpart on Friday as weaker-than-expected domestic data fueled interest rate cut bets and the greenback made broad-based gains.

For the week, the loonie fell 1.4 percent, its largest one-week decline since early May, according to Reuters data.

A drop in Canadian retail sales in August and cooler-than-anticipated annual inflation in September reinforced speculation the Bank of Canada may lower interest rates again, after the bank acknowledged this week it had considered cutting.

"There is definitely more focus on the Bank of Canada, therefore more focus on the data. So even a small downside miss seems to have had a disproportionate impact on the currency," said Daniel Katzive, head of FX strategy North America at BNP Paribas.

The implied probability of a Bank of Canada interest rate cut by mid-2017 jumped to more than 40 percent from around 30 percent before the data, overnight index swaps data showed. BOCWATCH

"Not all the move is reflecting simply what is going on in Canada, because the (U.S.) dollar is stronger pretty much against everything," Katzive said.

The U.S. dollar .DXY climbed to a 8-month high against a basket of major currencies.

The Canadian dollar CAD=D4 ended at C$1.3327 to the greenback, or 75.04 U.S. cents, weaker than Thursday's close of C$1.3222, or 75.63 U.S. cents.   Continued...

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015.   REUTERS/Mark Blinch