Canada's Dollar Falls

The Canadian dollar fell to its lowest in a week after the central bank's new governor lowered the benchmark interest rate half a percentage point and signaled more cuts may be coming, raising concern that the nation may not escape the U.S. economic slowdown., Bloomberg 3/4/2008 5:31:51 PM

Canada's currency stalled this year, after gaining about 17 percent in 2007, on speculation the Bank of Canada would lower borrowing costs amid increasing signs the U.S. is headed into a recession. Canada ships about 80 percent of its exports to the U.S.

The Canadian dollar, known as the loonie after the image of the bird on its one-dollar coin, fell 0.4 percent to 99.43 cents per U.S. dollar at 4:07 p.m. in Toronto from 99 cents yesterday. Earlier it touched 99.78, the weakest since Feb. 26. One Canadian dollar buys $1.0058.

Carney, in his first decision as central bank governor, cut the target rate for overnight loans between commercial banks to a two-year low of 3.5 percent from 4 percent. It was the third reduction since December. Thirteen of 26 economists in a Bloomberg News survey had forecast the bank would cut by 25 basis points, or 0.25 percentage point. The other 13 anticipated a 50- basis-point reduction.

The loonie climbed to its record high last year even as growth of Canada's biggest trading partner slowed amid a housing recession. That spurred talk of a decoupling of the two economies. Speculators led by hedge funds were so impressed by the currency's gains that the net bets favoring it reached a record 83,001 in October, according to the Washington, D.C.-based Commodity Futures Trading Commission.

High prices for the nation's commodity exports boosted the currency's appeal and helped the government balance its budget.

The picture is different this year. Economic data has showed signs that the world's eighth largest economy is faltering as the slump in the U.S. broadens. Canada's economy grew at the slowest pace since 2003 in the fourth quarter and contracted in December. Its current account, the broadest measure of trade in goods and services, fell into deficit for the first time since 1999 in the fourth quarter.

Tumbling exports to the U.S. will limit 2008 economic growth to a seven-year low of 1.8 percent, the Bank of Canada said. They've erased the northern nation's broad trade surplus for the first time since 1999.