Canadian dollar falls on oil, rate uncertainty

Wed Jul 23, 2008 5:43pm EDT
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By John McCrank

TORONTO (Reuters) - The Canadian dollar fell to its lowest close in two weeks against a rallying U.S. dollar on Wednesday, despite a report that showed inflation in Canada was higher than the market had forecast, hurt by falling oil prices and an uncertain outlook for Canadian interest rates.

Bond prices ended mostly lower, taking direction from the larger U.S. market.

The Canadian currency closed at C$1.0103 to the U.S. dollar, or 98.98 U.S. cents, down from C$1.0084 to the U.S. dollar, or 99.17 U.S. cents, at Tuesday's close.

The currency has slid 1 percent since Monday, hurt by soft economic data and falling oil prices.

Retail sales data on Tuesday showed domestic spending in Canada was starting to sink. Domestic demand had been helping keep the economy afloat as other sectors of the economy were engulfed by the economic storm blowing in from the United States.

Meanwhile, the price of U.S. crude oil has slid to a six-week low on concerns that high energy prices would further weaken the U.S. economy and slash demand.

Canada, which has the largest reserves of oil outside the Middle East, is the top supplier of crude to the United States. The huge run up in oil prices has been credited as a major reason for the Canadian dollar's 60 percent appreciation since 2002.

Data on Wednesday showed the headline inflation rate rose past expectations to 3.1 percent in June from 2.2 percent in May.   Continued...

<p>A Canadian one dollar coin, also know as a loonie, is shown in Montreal in this April 28, 2006 file photo. REUTERS/Shaun Best</p>