Canadian dollar skids to lowest close since 2005

Tue Oct 21, 2008 4:39pm EDT
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar skidded to its lowest close in more than three years versus the U.S. dollar on Tuesday as the Bank of Canada cut its key overnight interest rate and suggested more rate cuts may be needed.

Bond prices finished comfortably higher across the curve as the likelihood of further Bank of Canada rate cuts and a slide in equity markets sparked another wave of demand for secure government debt.

The Canadian dollar closed at C$1.2137 to the U.S. dollar, or 82.39 U.S. cents, down from C$1.1937 to the U.S. dollar, or 83.77 U.S. cents, at Monday's close.

The Bank of Canada's decision to lower its key rate by 25 basis points fell short of the 50-basis-point cut that many of Canada's primary securities dealers had expected, but the tone of the statement was enough to keep the Canadian dollar down.

Not only did the central bank suggest it would likely cut rates further, but it also slashed its projections for economic growth and inflation given the global economic downturn, financial markets in stress, and the fall in commodity prices.

"It looks like rates will be going lower in Canada and that's not good for the (Canadian) currency," said Charmaine Buskas, senior economics strategist at TD Securities.

"The Canadian dollar has also been hit by softening oil prices so that kind of one-two punch didn't really provide much in the way of support for the (currency) today."

Lower oil prices often weigh on the Canadian dollar because Canada is a key supplier of oil to the United States.   Continued...