Dollar ends flat after touching 1-week high

Wed Jun 18, 2008 4:58pm EDT
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar closed a touch lower against the U.S. dollar on Wednesday but only after it hit a one-week high as a rethink on U.S. interest rate hikes continued to weigh on the greenback.

Domestic bond prices rose across the curve and reclaimed another chunk of last week's steep losses as investors dumped more risky assets in favor of government debt following fresh bank sector worries.

The Canadian dollar closed at C$1.0181 to the U.S. dollar, or 98.22 U.S. cents, down from C$1.0171 to the U.S. dollar, or 98.32 U.S. cents, at Tuesday's close.

Midway through the second half of the session the Canadian dollar rallied to C$1.0167 to the U.S. dollar, or 98.36 U.S. cents, its highest level since April 11. It then tilted lower but remained in the range it has occupied much of the year.

Dampened talk of U.S. Federal Reserve rate hikes, due to newspaper articles earlier this week citing Fed officials who said the U.S. central bank was unlikely to raise rates in the next few months, continued to give the Canadian dollar legs to rally.

And since much of the greenback's strength early this month was a byproduct of expectations for higher U.S. interest rates, it may face pressure as rate-hike talk dominates the market.

"Those (rate hike) expectations are being tempered in the marketplace and we're seeing kind of a reassessment of just how aggressive the Fed can potentially be," said Gareth Sylvester, senior currency strategist at HIFX Plc in San Francisco.

"Certainly the marketplace is not expecting them to take a real radical stance and that's just translating into some mild U.S. dollar weakness which is allowing the Canadian dollar to firm up ever so slightly."   Continued...