Canadian dollar hands back slice of recent gains

Fri Feb 29, 2008 9:55am EST
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar backed off its 3-month high versus the U.S. dollar on Friday morning as economic data showed Canada fell into a current account deficit in the fourth quarter.

Domestic bond prices, which had followed the U.S. Treasury market higher most of this week on weak U.S. data, built on those gains due to nagging concerns about a U.S. recession.

At 9:40 a.m. EST, the Canadian currency was at US$1.0222, valuing a U.S. dollar at 97.83 Canadian cents, down from US$1.0241, valuing a U.S. dollar at 97.65 Canadian cents, at Thursday's close.

The dollar entered the session up 3.7 percent for the week, due mainly to record high oil prices and a weak U.S. dollar, but its rally has appeared to have run out of gas for now as much of the bad news has been priced into the greenback.

Data showed Canada dropped into a current account deficit of C$513 million in the fourth quarter, steeper than the C$300 million deficit forecasted by analysts and the first shortfall since the second quarter of 1999.

"It's Friday, there's been a large run and there doesn't seem to be a trigger for much of a run today, so as a result of that you get some taking back from some of the moves over the past few days which have been quite large," said David Watt, senior currency strategist at RBC Capital Markets.

"And going into the end of the week people are probably going to get a little but more cautious over the next few days because looking into next week there are a whole host of central bank meetings."

Central banks that are scheduled to set interest rates next week include the Bank of Canada, the European Central Bank, the Bank of England and Bank of Japan.   Continued...