Canadian dollar ends big week with a whimper

Fri Feb 29, 2008 4:32pm EST
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar ended this week's rally against the U.S. dollar with a lower close on Friday as weak data and uncertainty about the size of an expected interest rate cut by the Bank of Canada next week dragged the currency from a three-month high.

Canadian bond prices finished higher across the curve as heightened concerns about a U.S. recession intensified investor appetite for the security of government debt.

The Canadian dollar closed at US$1.0158, valuing a U.S. dollar at 98.44 Canadian cents, down from US$1.0241, valuing a U.S. dollar at 97.65 Canadian cents, at Thursday's close.

The currency had rallied for four straight sessions to its highest level since November 19 before easing on Friday. The currency rose 2.9 percent on the week.

The decline in the Canadian dollar began overnight, but it picked up steam early in the North American session as economic data showed Canada fell into a current account deficit in the fourth quarter.

Also weighing on the Canadian currency were ongoing concerns about what impact a slowdown in the U.S. economy could have on Canada and debate about the size of the rate cut the Bank of Canada is expected to announce next week.

"The Canadian dollar shone earlier in the week on the crosses and we just gave a little bit of that back," said Steve Butler, director of foreign exchange trading at Scotia Capital. "There's a few what ifs on the back of everybody's mind so I think people are taking this opportunity to square up after such a big week."

The Bank of Canada will announce its interest rate decision on March 4. A Reuters poll conducted on Friday showed most of Canada's primary dealers expect a 50-basis-point cut in the overnight rate to 3.50 percent.   Continued...