OTTAWA - The Canadian dollar fell by more than a U.S. cent on Monday after Bank of Canada governor David Dodge raised the possibility that the central bank may cut interest rates to boost the economy.
The currency closed down 1.13 cents to 101.55 cents US. The dollar has been declining almost daily since it hit a record high of just over 110 cents US earlier this month.
Dodge, in South Africa during the weekend for a meeting of the Bank for International Settlements, said there is less optimism than there was a month ago "that the financial market problems would resolve themselves.''
He said "global financial turbulence that we are experiencing is now going to be more prolonged ... (and) that clearly poses a risk that we are going to take into account when setting our own policy."
The bank is to make its next scheduled announcement on interest rates Dec. 4.
Steve Butler, director of foreign exchange trading at Scotia Capital Markets, said Monday that Dodge's comments hint at the governor's unease with the loonie's rapid rise.
"If you read through the lines, people are starting to question whether or not the bank is going to react to the sharp appreciation of the currency with a change in monetary policy,'' he said.
A report on inflation, to be released Tuesday, will be a litmus test of sorts. If there's a spike in the inflation rate, it might suggest the central bank is focusing too much on the currency and losing sight of the economy as a whole, Butler said.
The currency has also headed lower because of data last week showing a slide in manufacturing shipments, plus a warning by Paul Jenkins, the Bank of Canada's senior deputy governor, that the dramatic rise in the loonie this year is putting Canada's economic growth in peril.
The dollar started the year at 85.81 cents US.
