Canada dollar down after ECB rate hike, U.S. data

Thu Jul 3, 2008 10:02am EDT
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar fell versus the U.S. dollar on Thursday after data from south of the border was mainly in line with expectations while the European Central Bank did as expected and hiked interest rates.

Domestic bond prices were pinned slightly lower across the curve, giving back some of the previous session's gains, as the market had been considering the possibility that the U.S. jobs data would come in much worse than it did.

At 9:45 a.m. EDT, the Canadian unit was at C$1.0180 to the U.S. dollar, or 98.23 U.S. cents, down from C$1.0134 to the U.S. dollar, or 98.68 U.S. cents, at Wednesday's close.

One drag on the Canadian currency was the decision by the European Central Bank to hike its key interest rate by 25 basis points to 4.25 percent.

That marked the ECB's first rate hike in more than a year, which weighed on the Canadian dollar since the Bank of Canada only recently took a break from an aggressive easing campaign and is not expected to start hiking anytime soon.

The Canadian currency was also being rattled by a stronger greenback since the key piece of U.S. data for the week showed the economy shed 62,000 jobs in June, a bit more than the 60,000 jobs that had been forecast.

"Most of the details of the report were on the weak side but I think the market was braced for something considerably worse and there seems to be a little bit of relief for the U.S. dollar," said Doug Porter, deputy chief economist at BMO Capital Markets.

"As well the currency is under just a touch of pressure as the ECB hiked as expected and could possibly hike further and it certainly doesn't look like the Bank of Canada is in any rush whatsoever to start raising rates."   Continued...