Canadian dollar closes lower after midday meltdown

Fri Feb 15, 2008 4:33pm EST
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar fell versus the U.S. dollar on Friday as low liquidity ahead of a holiday weekend and weak domestic data pulled the rug from under the currency and knocked it lower for the second straight week.

Domestic bond prices finished higher across the curve as the weak report on Canadian manufacturers supported market expectations that the Bank of Canada would cut interest rates for the third consecutive time when it sets rates in March.

The Canadian dollar closed at C$1.0075 to the U.S. dollar, or 99.26 U.S. cents, down from C$1.0002 to the U.S. dollar, or 99.98 U.S. cents, at Thursday's close.

The bulk of the currency's decline came in one swift move just after midday as the U.S. dollar broke through C$1.0024, or 99.76 U.S. cents, and then shot to C$1.0115, or 98.86 U.S. cents.

The early-session weakness for the Canadian dollar came after domestic data showed factory shipments of vehicles plunged in December to their lowest level in over a decade.

That report followed economic data on Thursday that showed Canada's trade surplus shrank more than expected in December. Each supported market expectations for more Bank of Canada rate cuts.

"Mostly, what we've seen is a real one-two punch of very soft domestic data in the last two days between yesterday's trade number and today's manufacturing number," said Doug Porter, deputy chief economist at BMO Capital Markets.

"The main point here is there are just some questions as to how well the Canadian economy can hold up in the face of a marked U.S. slowdown."   Continued...