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RM Issue #030620

Dollar slips amid talk of Bank of Canada rate cut
CBC - Thu, 19 Jun 2003
TORONTO - After falling sharply in early Thursday trading, the Canadian dollar regained some lost ground amid speculation the Bank of Canada could be heading for an interest rate cut.

The dollar was worth 73.45 cents US, down 0.38 of a cent in afternoon trading. Earlier in the day the dollar had been off by almost a full cent.

The sharp drop in the morning came a day after Bank of Canada governor David Dodge said a combination of factors weakness in the U.S. and global economies, and the economic impact of severe acute respiratory syndrome and Bovine Spongiform Encephalopathy will likely mean a very weak second quarter and continuing softness in the Canadian economy in the third quarter.

Additionally, ongoing weak domestic demand in the U.S. and the sharp rise in the loonie agains the U.S. dollar will hurt Canadian exports, Dodge said.

Economists in Canada are now speculating the Bank of Canada could be leaning towards a rate cut.

"A modest move in September is quite possible, but the (Bank of Canada) won't likely overreact," BMO Nesbitt Burns economist David Watt said in a morning commentary.

"There is also a good chance the Bank may bunker down and ride out the near-term turbulence until the end of the year especially if the U.S. economy starts to show signs of life," Watt said.

The U.S. Federal Reserve is set to make its next interest rate decision next week, with observers now speculating the Fed will cut rates by a quarter of a percentage point.

Written by CBC News Online staff

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