Canada Afternoon: C$ Dn On Profit Taking Before BOC Rate Call

TORONTO (Dow Jones)--The Canadian dollar ended moderately lower Monday after flirting with parity in earlier trading and then retreating as market players took profits ahead of the Bank of Canada's interest rate announcement Tuesday. The U.S. dollar was trading at C$1.0071 at 3:39 p.m. EDT (1939 GMT), from C$1.0044 at 8:00 a.m. EDT (1200 GMT) and C$1.0055 late Friday. The U.S. dollar dropped to a low of C$1.0000 in morning trading, according to electronic trading system EBS, but rebounded in subsequent dealings, hitting the C$1.0080 area before paring its gains slightly. Some market participants appeared to be profits on the Canadian unit's earlier strength ahead of the Bank of Canada's interest rate announcement Tuesday, said Steve Butler, director of foreign exchange at Scotia Capital. "Obviously, we've got the Bank of Canada tomorrow, so I think a few people might be just squaring up some stuff before we see exactly what the bank does," Butler said. The market is positioned for a 50-basis-point easing in the bank's overnight target rate, taking the benchmark rate to 3.00%. But there is some conjecture the bank could only ease rates by 25 basis points as market conditions appear to stabilize. "It seems like a few people are scratching their heads, saying 'Do we really need to go 50?'," Butler said. Strength in commodity prices, concerns about inflation in other jurisdictions, and the resilience of stock markets are all developments that call in to question somewhat the need for a 50-basis-point cut, he said. A more restrained quarter-percentage-point cut could prompt a sharp rebound in the currency, Butler said. A report from Dustin Reid, currency strategist at ABN Amro in Chicago, said a 25-basis-point ease would likely have the Canadian dollar bid and would likely be enough to push the U.S. dollar below parity with its Canadian counterpart, at least in the short-term. "Of course, much depends on the statement and not only the headline movement. Another dovish statement along the same lines as the March 4 statement coupled with a 50-bps ease would likely get (the Canadian dollar) significantly offered," Reid wrote. A 50-basis-point cut with a less dovish statement is a more probable combination, he wrote. Whatever transpires Tuesday, the U.S. Canadian dollar pair will likely still trading in a well defined trading into the coming sessions, Scotia's Butler said. "We're pretty well smack dab in the middle of it now, and we could probably trade all the way down to C$0.9700, and people would still be unconvinced anything's changed," he said. Support is located around C$0.9980-90, and a break below that would likely inspire fresh Canadian dollar buying, Butler said. Resistance is around C$1.0280, with less significant resistance around the 200-day moving average at C$1.0085, he said. "We've been trading up and down through that average a lot, so I'm not giving it too much weight," Butler said. These are the exchange rates at 3:39 a.m. EDT (1939 GMT), 8:00 a.m. EDT (1200 GMT), and late Friday. USD/CAD 1.0071 1.0044 1.0055
EUR/CAD 1.5996 1.5977 1.5898
CAD/JPY 102.83 102.87 103.25