Canadian dollar slides with oil, bonds rise

Mon Dec 3, 2007 10:03am EST
 
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 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.
 BONDS RISE
 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)