Dollar ends volatile session slightly lower

Tue Apr 22, 2008 5:05pm EDT
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar rallied from an early trough on Tuesday, thanks to record high oil prices and a weaker U.S. dollar, but it was not enough to erase the slide recorded after the Bank of Canada cut interest rates.

Domestic bond prices ended higher across the curve as the statement by the Bank of Canada left the door open to further rate cuts.

The Canadian dollar closed at C$1.0080 to the U.S. dollar, or 99.21 U.S. cents, down from C$1.0060 to the U.S. dollar, or 99.40 U.S. cents, at Monday's close.

The currency fell to C$1.0154 to the U.S. dollar, or 98.48 U.S. cents, shortly after the Bank of Canada cut its benchmark interest rate by a half a percentage point to 3.00 percent.

But the loonie recouped a significant portion of the losses as the U.S. dollar stumbled on weak economic data while oil prices surged to a record high near $120 a barrel.

Just after midday, the currency rallied to C$1.0025 to the U.S. dollar, or 99.75 U.S. cents, and then gave back a chunk of the gains in the last half of a roller-coaster session.

A Reuters poll taken last week showed a large majority of primary dealers expected a 50 basis point rate cut, but there was plenty of chatter that the central bank might opt to cut rates by just a quarter point.

"People were wondering whether the Bank of Canada might do something funny and not deliver on their promise, but obviously they did do that," said Steve Butler, director of foreign exchange trading at Scotia Capital.   Continued...