Loonie dips on inflation data, bonds up

Fri Jan 25, 2008 9:01am EST
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By John McCrank

TORONTO (Reuters) - The Canadian dollar dipped slightly against the U.S. dollar on Friday, as inflation numbers for December came in lower than expected, opening the door for further interest rate cuts by the Bank of Canada.

Canadian bond prices rose after the data.

At 8:42 a.m., the Canadian unit was at C$1.0072 to the U.S. dollar, or 99.29 U.S. cents, down from C$1.0061 to the U.S. dollar, or 99.39 U.S. cents, at Thursday's close.

The Canadian dollar fell as low as C$1.0111, or 98.90 U.S. cents, after Canada's core inflation rate unexpectedly slowed to a two-year low of 1.5 percent in December.

"I think the market's got the old bee-in-the-bonnet about the Bank of Canada, which will now have no concerns over the next meeting's rate cut, and I think that's probably taken a bit of the shine off the Canadian dollar," said Steve Butler, director of foreign exchange at Scotia Capital.

Analysts had forecast an annual core rate of 1.7 percent.

Core inflation is carefully watched by the central bank regarding its interest rate decisions, and December's lower-than-expected number leaves the door wide open for further rate cuts.

The Bank of Canada lowered its key overnight rate by 25 basis points to 4.00 percent on Tuesday.   Continued...