Bleak U.S. outlook hits dollar

Thu Jan 17, 2008 5:27pm EST
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By John McCrank

TORONTO (Reuters) - The Canadian dollar was dragged lower against the greenback on Thursday as a steady stream of dire U.S. economic news pointed to the growing possibility of a recession in the world's biggest economy, which absorbs nearly three-quarters of Canadian exports.

Domestic bond prices rallied along with U.S. Treasuries in a safe-haven bid as stock markets fell heavily into the red.

The Canadian unit closed at 97.11 U.S. cents, valuing a U.S. dollar at C$1.0298, down from 97.60 U.S. cents, or C$1.0246, at Wednesday's close.

"A few things are playing into a weakening off of the Canadian dollar today including a weakening off of oil prices, as well as disappointing economic news from the Philly Fed," said Camilla Sutton, currency strategist at Scotia Capital.

The Philadelphia Federal Reserve Bank said its business activity index had its largest one-month drop since January 2001 in December, exacerbating fears of a U.S. recession.

That sent the U.S. dollar lower against most other currencies, and it took the Canadian dollar with it, as Canada's economy is inextricably linked to the U.S. economy.

The painful news continued, with some U.S. earnings that surprised to the downside, sending equities markets tumbling.

Later in the day Fed Chairman Ben Bernanke confirmed his bleak assessment of U.S. economy's health before a congressional committee further adding to the gloom in the market.   Continued...