4 December 2007

Canadian dollar tumbles after rate cut

The following article is excerpted from the 4 December 2007 edition of “globeandmail.com”.

The Canadian dollar hit its lowest level since September after the Bank of Canada cut its key lending rate Tuesday, citing a worsening U.S. housing market and turmoil in credit markets.

The currency shed more than a cent, trading at 98.80 cents (U.S.) from Monday's close of 99.98 cents, to its lowest level in two-and-a-half months….

The loonie has tumbled 11 per cent from last month's peak as a growing number of Canadian economic reports have highlighted a slowdown in exports and consumer spending.

“Overall sentiment certainly seems to have changed over the last few weeks, moving against the Canadian dollar,” said Camilla Sutton, currency strategist at Bank of Nova Scotia. She sees the loonie staying below parity for the rest of this month before appreciating again in the first quarter….

Most strategists still believe the Federal Reserve will be more aggressive in cutting rates than the Bank of Canada though -- and that may be limiting the loonie's decline. Almost half of traders now believe the Fed will cut 50 basis points at its meeting next week. …

Tuesday's statement gave little indication of whether interest rates will fall further. The central bank next meets on Jan. 22 in what will be Governor David Dodge's last decision before Mark Carney assumes the mantle….