Canadian dollar slumps on rate cut expectations

Fri Aug 1, 2008 5:17pm EDT
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By John McCrank

TORONTO (Reuters) - The Canadian dollar fell against the U.S. dollar on Friday, its eighth decline in the past nine sessions, after recent data pointed to a stumbling economy and the market anticipated the next move the Bank of Canada will make on interest rates will be a cut.

Bond prices rallied on a safety bid as stock markets weakened, and were given an extra boost by the interest rate outlook.

The Canadian currency closed at C$1.0271 to the U.S. dollar, or 97.36 U.S. cents, down from C$1.0240 to the U.S. dollar, or 97.66 U.S. cents, at Thursday's close.

The currency hit a session low of C$1.0299, its weakest point since June 16. For the week, it ended down 0.7 percent.

The Canadian economy has been hard hit by the slowdown in the United States, where it sends over three-quarters of its exports. American consumers have been struggling under the weight of a housing slump and tight credit.

The Canadian economy shrank an annualized 0.3 percent in the first quarter, and data on Thursday showed it continued to founder in June, declining by 0.1 percent.

"The Canadian dollar remains under pressure and I think it's in large part due to the soft run of Canadian data, particularly the GDP data, and the growth outlook for Canada is softening," said Fergal Smith, managing market strategist at Action Economics.

The softening outlook for Canadian growth has led investors to start pricing in an interest rate cut by the Bank of Canada before the end of the year, Smith said. Until recently, rising inflation had investors betting the next move by the Bank of Canada would be a hike.   Continued...