Loonie sent lower after weak GDP report

Mon Mar 3, 2008 9:58am EST
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar dropped to its lowest level in nearly a week on Monday as data showed the economy slowed in the fourth quarter, supporting calls for the biggest Bank of Canada rate cut in years.

Domestic bond prices moved higher on the short end of the curve immediately after the weak gross domestic product data, but long end prices remained under pressure.

At 9:45 a.m. EST, the Canadian dollar was at US$1.0127, valuing a U.S. dollar at 98.75 Canadian cents, down from US$1.0159, valuing a U.S. dollar at 98.43 Canadian cents, just ahead of the data.

The domestic currency fell as low as US$1.0097, or 99.03 Canadian cents, after the report. It closed at US$1.0158, or 98.44 Canadian cents on Friday, in a week where the currency rose nearly 3 percent.

But those gains were almost entirely wiped out in a sudden swoop that was triggered by data that showed a lofty Canadian dollar weighed on exports and slowed annualized economic growth in the fourth quarter by more than expected.

The data support expectations for the Bank of Canada to cut its key interest rate by 50 basis points to 3.50 percent on Tuesday.

The central bank lowered its key rate by 25 basis points in December and January, but a half-percentage point cut would be its biggest cut since late 2001 just after the September 11 attacks on the United States.

"It's got the market basically pricing in a 50-basis-point cut at tomorrow's meeting and as a result of that weaker data we've seen the Canadian dollar weaken off," said George Davis, chief technical strategist at RBC Capital Markets.   Continued...