Loonie boosted by Fed move

Wed Jan 30, 2008 6:06pm EST
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By John McCrank

TORONTO (Reuters) - The Canadian dollar rose against the U.S. dollar after the U.S. Federal Reserve cut its key lending rate by half a percentage point, creating an interest rate spread in favor of the Canadian currency not seen since June 2004.

Canadian bond prices were mixed in response to the Fed and the prospect of more rate cuts to come.

The Canadian dollar was at US$1.0068, valuing a U.S. dollar at 99.32 Canadian cents, up from US$1.0005, or 99.95 Canadian cents, at Tuesday's North American session close.

The Canadian dollar rose as high as US$1.0131, valuing a U.S. dollar at 98.71 Canadian cents, shortly after the Fed's announcement.

The Fed has now slashed U.S. interest rates by 225 basis points since September as it grapples with an economic downturn.

In that time, the Bank of Canada has also cut its key lending rate, but less drastically, for a total of 50 basis points.

That puts U.S. interest rates 1 percentage point lower than Canadian interest rates, which should make the Canadian dollar more attractive to investors versus the greenback.

But other factors may keep the Canadian dollar from appreciating much further, said Steve Butler, director of foreign exchange at Scotia Capital.   Continued...