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CAD cut rates by 25 basis points

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Tuesday, 28 October 2008

Fears of a global recession and weaker commodity prices once again weighed heavily on the Loonie last week. The Bank of Canada cut rates by 25 basis points, in an effort to encourage spending and stimulate the markets. The cut however, was less than the 50 basis points expected by the market although analysts have already commented that they expect further cuts.

Despite the poor Canadian market data, the Canadian Dollar actually gained ground against the Pound, although this was arguably due to weak data coming out of the UK rather than a progressive Canadian Dollar performance.

Falling commodity prices continue to put pressure on the Canadian Dollar as metal and oil prices drop. This weighs heavily on Canada’s status as a major exporter of these commodities and leaves them vulnerable to the slowdown in the US, as the US is their major trading partner. As a result, the outlook for the Canadian economy remains bleak, however, the expectation for the GBP/CAD cross is for the pair to remain relatively stable as weakness in the Pound counteracts weakness in the Canadian Dollar.

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