Canada Afternoon: C$ Ends Lower On Rising Central Bank Caution

TORONTO (Dow Jones)--The Canadian dollar ended lower Thursday, underperforming most other widely-traded currencies with some caution and profit-taking on recent gains setting in as the market begins to eye next Tuesday's Bank of Canada policy announcement and the possibility of fresh jawboning against the Canadian dollar's most recent rise.

The U.S. dollar was trading at C$1.0350 at 3:38 p.m. EDT (1938 GMT), from C$1.0329 at 8:00 a.m. EDT (1200 GMT) and C$1.0271 late Wednesday.

While the overall risk environment remained generally supportive of the Canadian currency Thursday, with oil prices making renewed advances and equity markets not making dramatic moves in either direction, the Canadian dollar spent most of the North American session locked in lackluster dealings in the mid-C$1.0300s.

Overnight, the currency had set a new 14-month high at C$1.0208, according to EBS via CQG, but it steadily ceded those gains into North American trading.

Currency watchers attributed much of this underperformance to a more cautious tone starting to creep in as the week draws to a close and the Canadian central bank's policy announcement and latest Monetary Policy Report looms next week.

"There's probably some profit-taking as people realize that the Bank of Canada meeting is coming on Tuesday," said currency strategist Camilla Sutton of Scotia Capital in Toronto. "Might as well lock in some profits and wait and see whether the Bank does strengthen their comments on the Canadian dollar."

Bank of Canada Governor Mark Carney and other senior Bank officials have consistently stressed since the spring that the Canadian dollar's rise throughout much of this year carries unwanted risks to the inflation and growth outlooks, and the market is likely bracing for potentially harsher language next week given the currency's recent sharp rally towards parity with the U.S. dollar.

This could make for continued corrective dealings over the next two trading sessions, although Scotia's Sutton suggested that the medium-term trend toward a stronger Canadian dollar isn't likely to change.

Friday, the currency could be impacted to a mild degree by Canada's September consumer price index report, with consensus forecasts calling for core inflation to remain well below the Bank of Canada's target rate with a 1.4% yearly increase and all-items inflation ticking up 0.1% from August and falling 0.9% from a year ago.

These are the exchange rates at 3:38 p.m. EDT (1938 GMT), 8:00 a.m. EDT (1200 GMT), and late Wednesday.

   USD/CAD     1.0350      1.0329     1.0271 
   EUR/CAD     1.5447      1.5367     1.5371 
   CAD/JPY      87.66       87.28      87.12 

-By Paul Evans; Dow Jones Newswires; (416) 306-2022; paulr.evans@dowjones.com

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(END) Dow Jones Newswires

October 15, 2009 15:43 ET (19:43 GMT)


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