Dollar falls as rate cut comments linger

Mon Feb 11, 2008 4:52pm EST
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar ended lower against the U.S. dollar on Monday in a lackluster session in which investors reflected on weekend Bank of Canada comments that suggested more interest rate cuts are on the way.

Domestic bond prices held on to finish higher across the curve as concerns about a U.S. recession trumped a turnaround in North American equity markets.

The Canadian dollar closed at C$1.0015 to the U.S. dollar, or 99.85 U.S. cents, down from US$1.0002, which valued a U.S. dollar at 99.98 Canadian cents, at Friday's close.

Comments from Bank of Canada Governor Mark Carney over the weekend, which suggested more rate cuts were likely needed, were enough to weigh on the currency given the lack of any key domestic data to sway financial markets.

Carney said the timing and degree of any rate cuts will be determined at future fixed announcement dates, which leaves the door open for a bolder 50 basis point cut when the central bank next sets interest rates on March 4.

"I personally took the remarks to be mildly dovish," said Doug Porter, deputy chief economist at BMO Capital Markets. "And if you read between the lines you could see he was leaving the door slightly ajar to a more aggressive move."

The Canadian dollar, which spent the session wedged in a range of C$1.0035, or 99.65 U.S. cents, and US$1.0015, valuing a U.S. dollar at 99.85 Canadian cents, barely budged after news that the minority Conservative government will present its next federal budget on February 26.

If the budget is not passed, the government will fall and there will be a federal election. However, that is not expected to rattle the currency as polls suggest another minority government would likely be the result.   Continued...