Canadian dollar dips but election news plays little part

Fri Mar 25, 2011 5:39pm EDT
 
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TORONTO (Reuters) - The Canadian dollar fell against a broadly firmer U.S. currency on Friday, wounded mainly by softer oil prices as the fall of Canada's minority Conservative government in Parliament caused little pain.

The Canadian dollar was already weakening as the U.S. dollar gained on a hawkish comment from Philadelphia Federal Reserve Bank President Charles Plosser. Plosser said the central bank will have to tighten monetary policy soon to avoid sowing the seeds of inflation.

Oil prices dipped slightly in choppy, thin trade on Friday as traders weighed concerns about Middle East unrest and Libya's conflict as well as worries about demand for oil in quake-hit Japan and debt-laden Europe.

By the time Canada's government fell at midafternoon, forcing an election in May, the Canadian dollar was slightly off its session lows but steady around C$0.9810 to the U.S. dollar, or $1.0194.

It finished at C$0.9817 to the U.S. dollar, or $1.0186, down from Thursday's North American close of C$0.9762 to the U.S. dollar, or $1.0244.

The possibility of an election had garnered some attention in the market earlier in the week but had little impact on where the Canadian dollar eventually settled.

"In all honesty, political developments to early May are likely to be tempests in a teapot and to have no material impact on (the Canadian dollar)," said David Watt, senior fixed income and currency strategist RBC Capital Markets.

The market believes that neither the Conservatives nor the Liberals, the biggest opposition party, if elected would pursue policies that would damage the country's economic health and stability.

"Fundamentals in Canada remain relatively strong. I don't think any of the parties are willing to compromise that," said Charles St-Arnaud, Canadian economist and currency strategist at Nomura Securities International in New York.   Continued...