Dollar falls on weak data as rate cut looms

Thu Apr 17, 2008 4:53pm EDT
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar closed lower versus the U.S. dollar on Thursday, handing back more than half Wednesday's gains as weak inflation data solidified expectations of a 50-basis-point interest rate cut from the Bank of Canada next week.

Domestic bond prices closed mostly lower as a slide in the bigger U.S. Treasury market influenced the direction for the Canadian market, whose fall was cushioned by the weak data.

The Canadian dollar closed at C$1.0122 to the U.S. dollar, or 98.79 U.S. cents, down from C$1.0014 to the U.S. dollar, or 99.86 U.S. cents, at Wednesday's close.

Thursday's data showed core inflation slowed more than expected in March to 1.4 percent, its lowest since July 2005 and below the central bank's 2 percent target.

The Canadian currency climbed above the greenback immediately after the figures were released, but slipped back below it as North American investors arrived at their offices.

It was the Canadian currency's first stint above parity versus the U.S. dollar in almost a month. But the currency remains locked in the range it has occupied for months.

"The data essentially solidified the outlook for another 50 basis point easing at the next meeting and probably got rid of anyone who was doubting it to begin with," said David Powell, currency analyst at IDEAglobal in New York.

A Reuters poll showed a large majority of Canada's primary securities dealers expect the Bank of Canada to cut its key interest rate by 50 basis points to 3 percent when it sets rates on April 22.   Continued...