Dollar dips ahead of Bank of Canada rate decision

Tue Jan 22, 2008 8:12am EST
 
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar fell against the U.S. dollar on Tuesday, driven lower by concerns about a possible global economic slowdown and talk of a bigger-than-expected Bank of Canada interest rate cut.

Domestic bond prices rose across the curve as investors fled risky investments like stocks in favor of more secure assets like government debt.

At 7:50 a.m., the Canadian dollar was at C$1.0334 to the U.S. dollar, or 96.77 U.S. cents, down from C$1.0329 to the U.S. dollar, or 96.81 U.S. cents at Monday's close.

The Canadian currency touched a four-month low of 96.34 U.S. cents overnight, building on Monday's losses and setting the stage for a fourth straight week of declines versus the greenback.

The Canadian dollar has fallen on fears of a U.S. recession that could spill over to hit the global economy. Those concerns have triggered sharp declines in equity markets around the world -- Canadian stocks were down 4.75 percent on Monday -- and darkened the outlook for exports.

The sharp tumble in equity markets sparked talk that the Bank of Canada could cut interest rates by 50 basis points at its 9 a.m. announcement, instead of the 25 basis points all 12 Canadian primary dealers predicted in a Reuters poll last week.

"Generally what you've seen over the last 12 hours or so is a rush to safety into more traditional safe-haven currencies like the Japanese yen and Swiss franc," said Russell Jones, head of fixed income at RBC Capital Markets in London.

"The Canadian dollar has been sold ... in part reflecting expectations that there will be an ease in monetary policy and if anything it could go beyond the 25 basis points which has been priced in for some time."   Continued...

 
<p>A Canadian one dollar coin, also know as a loonie, is shown in Montreal, April 28, 2006. The Canadian dollar fell against the U.S. dollar on Tuesday, driven lower by concerns about a possible global economic slowdown and talk of a bigger-than-expected Bank of Canada interest rate cut. REUTERS/Shaun Best</p>