Canadian dollar ends higher versus weak greenback

Wed Apr 30, 2008 5:31pm EDT
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar closed higher versus a generally weaker U.S. dollar on Wednesday as the U.S. Federal Reserve cut interest rates and left the door open to further easing.

Canadian bond prices ended higher across the curve as data that showed Canada's economy unexpectedly shrank in February triggered a gain that was beefed up after a Fed statement that was seen as dovish by some.

The Canadian dollar closed at C$1.0072 to the U.S. dollar, or 99.29 U.S. cents, up from C$1.0119 to the U.S. dollar, or 98.82 U.S. cents, at Tuesday's close.

Some of the gains followed the Fed's widely expected quarter-percentage-point cut to the fed funds rate, to 2 percent, which came with a statement that left the central bank's next move unclear.

"The FOMC statement had been looked at as potentially being a savior for the U.S. dollar and instead it seems like the Fed ... still remains wary of the economic outlook and left open the door for further rate cuts," said David Watt, senior economist at RBC Capital Markets.

"They didn't really indicate a pause and they indicated that the inflation risks are not as worrisome for them as some in the market had been speculating about."

Earlier in the session, the Canadian dollar hit its highest level in a week - C$1.0037 to the U.S. dollar - due in large part to month-end flows. It gave back some of the gains but rose again as the greenback slipped after the Fed rate decision.

Comments from Bank of Canada officials to the House of Commons Finance Committee late in the session did not have much of an impact on the currency.   Continued...

<p>A Royal Canadian Mint employee holds freshly pressed Canadian one dollar coins in Winnipeg, November 14, 2007. REUTERS/Fred Greenslade</p>