Canadian dollar slips ahead of rate announcement

Tue Apr 22, 2008 8:31am EDT
 
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By John McCrank

TORONTO (Reuters) - The Canadian dollar fell against the U.S. dollar on Tuesday ahead of an expected interest rate cut and the central bank statement that will accompany that announcement.

Domestic bond prices followed larger U.S. market lower.

At 8:04 a.m. (1204 GMT), the Canadian dollar was at C$1.0086 to the U.S. dollar, or 99.15 U.S. cents, down slightly from C$1.0060 to the U.S. dollar, or 99.40 U.S. cents, at Monday's close.

"Canada has been relatively sidelined overnight and is a little bit weaker because the market is expecting a 50 basis point ease by the Bank of Canada," said Steve Butler, director of foreign exchange at Scotia Capital.

A solid majority of Canada's primary security dealers expect the central bank to cut its key overnight rate by 50 basis points to 3 percent, according to a Reuters poll conducted last week after figures showed that inflation slowed to 1.4 percent in March.

That figure -- the lowest inflation rate since July 2005 -- gives the Bank of Canada plenty of room to cut interest rates to boost growth without fear of fueling inflation.

The bank has cut its main lending rate by 100 basis points since December in an attempt to limit the impact of the U.S. slowdown on the Canadian economy.

The United States takes over three-quarters of Canadian exports, and exports make up around 40 percent of the Canadian economy.   Continued...