4 Min Read
By John McCrank
TORONTO, Dec 3 (Reuters) - The Canadian dollar sagged against the U.S. dollar on Monday, as oil prices slid and the the market looked ahead to a Bank of Canada interest rate announcement on Tuesday.
Canadian bond prices rose ahead of the bank's decision.
At 9:46 a.m. (1446 GMT), the Canadian dollar was at 99.78 U.S. cents, valuing each U.S. dollar at C$1.0022, down from US$1.0000 at Friday's North American session close.
"It seems like there's been a shift in sentiment against the Canadian dollar, complicated, I think, by oil breaking significantly lower and technically looking quite weak," said Camilla Sutton, a currency strategist at Scotia Capital.
Oil prices slid to a five-week low on speculation OPEC may increase oil output when it meets on Wednesday. Canada is a major oil producer and exporter and its currency, which hit a modern-day high of US$1.1049 on Nov. 7, is often influenced by oil prices.
Traders were also cautious regarding Canadian dollar positions ahead of Tuesday's Bank of Canada interest rate announcement, which some experts feel could be the central bank's first rate cut since 2004.
A Reuters poll taken on Friday showed most of Canada's primary securities dealers predict the bank will leave rates steady on Tuesday.
Before Friday, the market had been more or less split in its expectations, but data showing the Canadian economy grew more than expected in the third quarter tipped sentiment in favor of no move in December.
Looking ahead, most dealers expect an interest rate cut in January.
Since the currency's rise to record levels in November, several central bank officials and senior government officials have expressed concern about the harm such a meteoric ascent will have on manufacturers and overall economic growth.
Canadian bond prices rose as investors awaited the Bank of Canada interest rate announcement and comments by senior bank officials in the days following.
"Even if the bank were to hold on rates tomorrow... there's plenty there to be worried about," said Mark Chandler, fixed income strategist at RBC Capital Markets.
Bank of Canada Governor David Dodge is set to appear before the Senate Banking Committee on Thursday. And incoming Bank of Canada Governor, Mark Carney, is to appear before the House Finance Committee on Wednesday.
A ream of weak economic data leading up to Friday's GDP report had amplified concerns about the effects of a strong currency and a slowing U.S. economy on Canadian growth.
The overnight Canadian Libor rate LIBOR01 was at 4.5650 percent, down from 4.6050 percent on Friday. The Bank of Canada targets 4.50 percent for the overnight rate.
Friday's CORRA rate CORRA= was 4.5525 percent, up from 4.5259 percent on Thursday.
The two-year bond rose 14 Canadian cents to C$101.26 to yield 3.585 percent. The 10-year bond climbed 56 Canadian cents to C$100.72 to yield 3.909 percent.
The yield spread between the two-year and 10-year bond moved to 32.4 basis points from 32.1 basis points at the previous close.
The 30-year bond gained C$1.01 to C$115.39 to yield 4.096 percent. In the United States, the 30-year Treasury yielded 4.329 percent.
The three-month when-issued T-bill yielded 3.94 percent, up from 3.92 percent at the previous close. (Editing by Bernadette Baum)