Canada dollar slides, ECB comments boost greenback

Thu Jul 3, 2008 6:02pm EDT
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar fell versus a stronger U.S. dollar on Thursday as the European Central Bank struck a less aggressive tone than expected on prospects for interest rate hikes this year, which triggered a rally in the greenback.

Canadian bond prices, with no domestic data to influence trade, clawed back from early losses to finish higher across the curve for the second straight session as U.S. jobs data came in below expectations.

The Canadian dollar closed at C$1.0188 to the U.S. dollar, or 98.15 U.S. cents, down from C$1.0134 to the U.S. dollar, or 98.68 U.S. cents, at Wednesday's close.

Comments from ECB Governor Jean-Claude Trichet after the bank's first rate increase in more than a year gave a less hawkish tone to prospects for future rate hikes than the market had expected and gave a boost to the U.S. dollar since the market was long on euros.

Trichet's comments came roughly at the same time as the key piece of U.S. data for the week showed the economy shed 62,000 jobs in June, roughly in line with the 60,000 jobs that the market had forecast.

Together, the two events were enough to force the Canadian currency to relinquish the bulk of the gains it made during the previous session, when it rose more than a cent off its session low of C$1.0222 to the U.S. dollar, or 97.83 U.S. cents.

But some experts considered Wednesday's move overdone as it came amid a sharp slide in equity markets, notably a 432-point drop on the Toronto Stock Exchange's main index.

"It probably wasn't justified being so strong yesterday so it gave back some of the gains overnight and then the momentum continued after the nonfarm data and Trichet's comments," said David Bradley, director of foreign exchange trading at Scotia Capital.   Continued...