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Canada dollar ends lower, slow grind continues

TORONTO: The Canadian dollar closed lower on Tuesday as the currency continued its slow grind downwards on the fourth day of thin trading.

"The story is the slow grind weaker. It's not a dramatic move, it's not a move marked by heavy volume, but it is an incremental and continuous move," said Reid Farrill, executive director of foreign exchange at CIBC World Markets.

The Canadian dollar closed at C$1.4638 (68.32 U.S. cents) on Tuesday, versus C$1.4624 (68.38 U.S. cents) at the previous session's close.

There are no compelling fundamental reasons for the currency to decline significantly, some analysts said.

"I haven't seen any logical explanations (for the downward trend of the Canadian dollar)," said Sal Guatieri, senior economist at Bank of Montreal.

"But I wouldn't really say it's weakening. I think it's still trading within a range. It's been bouncing between C$1.4500 and C$1.4700 for the last month or two. It just seems to be caught in that range," he added.

Guatieri said he suspected it was probably just one or two trades in an already-thin market that pulled the Canadian dollar down on Tuesday.

"That's what I would put it down to, trading in very thin markets moving the currency and then technicals exaggerating the moves. I don't think it's representing anything fundamental," said Guatieri.

He said the easing of oil prices may translate into slightly weaker trade flows. Also, the continued fears of aggressive tightening by the U.S. Federal Reserve are an important factor in the declining dollar, Guatieri added.

Critical indicators of inflation due at the end of the week should provide an increase in trading volumes and indicate the direction of interest rates, market watchers said.

The market is waiting intently for the U.S. producer price index on Thursday and the U.S. consumer price index on Friday.

"The CPI report for March, if it did come in on the very strong side could encourage the debate about whether the Fed will move 25 or 50 basis points at the May 16 policy meeting," Guatieri said. "The question is would the Bank of Canada match a 50-point move. If it does, that could put downward pressure on the currency."

One market watcher said it was so quiet in early trading that "people are just watching the screens right now and waiting for the next wave of buying or selling."

Trading picked up in midmorning when players on the International Monetary Market, the Chicago-based currency futures market, sold the Canadian dollar, said CIBC's Farrill.

But the Canadian unit settled into flat trading for the rest of the day, as it has for the last few trading sessions.

"Today was no exception. The decline of the Canadian dollar continues," said Farrill, adding that he expects this trend to keep going until at least the end of the week.

In cross-trading against major currencies, the Canadian dollar was at 73.04 yen CADX, compared with 72.75 yen at the previous session's close, and at C$1.4019 against the euro versus C$1.4061. The Canadian dollar was at A$1.1448 against the Australian dollar versus A$1.1426.-Reuters