Canadian dollar weakens

The Canadian dollar weakened modestly against the greenback on Friday, consolidating as world markets ended the week on a calmer note after days of being rocked by worries about the health of the global economy. The loonie had only a muted reaction to data that showed Canada's inflation rate came in at the Bank of Canada's target of 2 percent in September, reinforcing analysts' expectations that the central bank will maintain a neutral stance in its policy statement next week.
Despite the day's decline, the Canadian dollar recovered from the worst of losses this week that were spurred by a dive in oil prices and by uncertainty about global growth. The currency hit a more than five-year low on Wednesday. The Canadian dollar has lost about 6 percent since July, largely driven by a strong rally in the US dollar, though selling intensified in recent sessions as the global concerns gripped the market.
Still, many analysts believe that the trend of US dollar strength has been interrupted only temporarily, which will likely mean further loonie weakness ahead. "Long term, I think the US dollar is still bullish and it does look like the rally is intact," said Lennon Sweeting, corporate dealer at USForex. "I also think the US Federal Reserve will likely raise rates well ahead of the Bank of Canada, which would push the dollar higher against the Canadian dollar, but that's a long-term projection."
The Canadian dollar ended the North American session at C$1.1277 to the greenback, or 88.68 US cents, weaker than Thursday's close of C$1.1248, or 88.90 US cents. For the week, the loonie lost about 0.7 percent. Although the currency broke through the C$1.1279 level earlier this week, which had previously been the low for the year, it failed to sustain that move, which will likely leave it trading in a range for the short term, Sweeting said.
Attention at home was shifting towards the Bank of Canada policy statement to be released Wednesday, along with the bank's updated economic projections. Investors will be looking for any reaction from the bank to the recent market turmoil. The bank is expected to hold rates at 1 percent, where they have been for four years, until the third quarter of next year. "I don't think the Bank of Canada is going to shock markets; they're going to continue exercising caution," Sweeting said. Canadian government bond prices were lower across the maturity curve, with the two-year down 9-1/2 Canadian cents to yield 0.978 percent and the benchmark 10-year down 23 Canadian cents to yield 1.953 percent.