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Canadian Dollar Weakens Ahead of BOC Rate Decision

H.S. Borji
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Canadian Dollar Weakens Ahead of BOC Rate Decision

The Canadian dollar was weaker Tuesday, as the forex market shifted its attention to a more compelling second half of the week headlined by the Bank of Canada and several prominent US data releases.

The loonie strengthened moderately in the early session after comments from Russian President Vladimir Putin eased risk aversion in the markets. The USDCAD pair traded at a daily low of 1.1059 before shooting up later in the day. As of 19:45 GMT, the pair was trading 0.3 percent higher at 1.1110.

The Bank of Canada is expected to make no changes to the benchmark lending rate, which has been pegged at 1 percent since September 2010. The markets were taken by surprise last week when Statistics Canada said the economy expanded 2.9 percent annually in the fourth quarter and 2 percent in all of 2013. The firmer results could silence speculation lower interest rates would be necessary to stimulate growth.

Forex traders have speculated for months about how low the Canadian dollar would go. Several market voices have forecast the loonie to decline even further, as Canada grapples with a widening account deficit and struggling export sector. Economist David Rosenberg of Gluskin Sheff + Associates, however, suggests today the Canadian dollar may have bottomed out after its year-long slide.

Stronger factory output, rising GDP, firmer commodity prices and less dovishness from the central bank suggest the loonie may have bottomed out already, Rosenberg suggests. The Canadian Imperial Bank of Commerce (CIBC) supported this view by forecasting the loonie to close out 2014 at almost 93 cents. The Canadian government announced similar forecasts in its latest budget, when it said it expects the loonie to rise to 95 cents next year.

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