Canada dollar touches new low

greenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Wednesday November 7, 6:28 pm Eastern Time Canada dollar touches new low, rebounds on Dodge

Bank of Canada: CANADA OPEN 1.5927 PREVIOUS CLOSE 1.5920 -------------------------------------------------------------- By Ka Yan Ng TORONTO, Nov 7 (Reuters) - The Canadian dollar touched a record low on Wednesday but strengthened later in the day on a late afternoon remark by central bank Governor David Dodge. The Canadian dollar hit a record low of C$1.5993 to the U.S. dollar, or 62.52 U.S. cents, around midday, putting it a whisper away from the psychologically important C$1.60 level, or 62.50 U.S. cents.

At 5:50 p.m. (2250 GMT), the currency was at C$1.5970 to the U.S. dollar, or 62.62 U.S. cents.

In late afternoon remarks, Dodge said the central bank was very concerned about the level of the Canadian dollar.

``Yes, we are very concerned and the way we express that concern is by operating so as we hit our inflation targets,'' Dodge told the House of Commons Finance Committee in response to questions about the currency's value.

Earlier, in its semi-annual monetary policy report, the Bank of Canada said the fundamental reasons for the weak Canadian unit were the slow world economy, falling commodity prices, and the Sept. 11 attacks on the United States, which rattled an already sagging U.S. economy.

At a press conference on the report, Dodge said the best way to bolster the flagging Canadian dollar was to build a strong economy by keeping inflation low.

That seemed to send the Canadian dollar to its fresh low. But the currency reacted positively to Dodge's later remarks to the House of Commons, strengthening to C$1.5964 to the U.S. dollar.

DAMAGE CONTROL

Dodge's remarks were viewed as damage control, but it's unlikely the Canadian dollar can sustain the small rally or that he was hinting at intervention on behalf of the currency.

``I think he may have been a little bit taken aback by the market's reaction earlier today to his previous comment and he may be trying to reverse any sentiment that the bank is totally unconcerned about the currency. It does sound like a little bit of damage repair,'' said Doug Porter, senior economist at BMO Nesbitt Burns.

Most expect the market has its sights trained on breaking through C$1.60.

``Everybody smells C$1.60 and targets are higher than that,'' said David Ebata, managing markets analyst at Thomson IFR in Boston, adding that some option-related trading is sure to make the volatility even more ``jarring.''

In its semi-annual monetary policy report, which came a day after the U.S. Federal Reserve chopped rates for the tenth time this year, the Canadian central bank took the unusual step of saying its economic outlook is based on a set of working assumptions about business and consumer confidence.

The bank said forecasts in its November report were based on the twin assumptions that there would be no major escalation of violent activity and that consumer and business confidence would return to normal levels by mid-2002.

The Bank of Canada is likely to match the Fed's most recent rate cut at its Nov. 27 policy-setting date after it reiterated its forecasts of zero or negative growth for the second half of 2001.

But there is some speculation that the central bank will ease by 75 basis points at its Nov. 27 policy date, though most analysts are sticking with a prediction of a 50 basis point reduction for now.

``I think any inkling that we're going to see narrowing of Canada-U.S. interest rate spreads, that's going to undermine the Canadian dollar. That may already be working its way through the market,'' said Rob Palombi, senior fixed income analyst at Standard & Poor's MMS.

The Canadian dollar ended at C$1.5986 to the U.S. dollar, or 62.55 U.S. cents, down from C$1.5920, or 62.81 U.S. cents, at the previous close.

The currency has so far moved in a wide range between C$1.5890 and C$1.5993 in the North American session. Overnight,

it moved in a range of C$1.5922 to C$1.5938.

In cross-trading, the Canadian dollar was at 75.70 yen , compared with the previous close at 76.05 yen, and at C$1.4335 to the euro compared with C$1.4242 at the previous session . Against the Australian dollar it was at A$1.2123, versus A$1.2223.

Posters note: I think we're going to have fewer Canadian visitors this winter simply because the Canadian dollar is so weak which means less tourism business for us in the sunbelt states.

-- Guy Daley (guydaley1@netzero.net), November 08, 2001


Moderation questions? read the FAQ