Canadian dollar dips ahead of BoC, bonds rise

Mon Dec 3, 2007 4:33pm EST
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 By John McCrank
 TORONTO, Dec 3 (Reuters) - The Canadian dollar closed
slightly lower against the U.S. dollar on Monday, as investors
held off making any big moves ahead of a Bank of Canada
interest rate announcement on Tuesday.
 Canadian bond prices rose along with the larger U.S. market
on credit concerns.
 The Canadian dollar closed at 99.98 U.S. cents, valuing
each U.S. dollar at C$1.0002, down from US$1.0000 at Friday's
North American close.
 There was little to influence moves in the currency, with
no major domestic data on the docket, but that calm should give
way to volatility on Tuesday with the Bank of Canada
announcement, said Shaun Osborne, chief currency strategist at
TD Securities.
 "We've probably got about 50-50 (chance of an interest rate
cut) priced into the market right now, so we're going to get
some sort of movement tomorrow, I'd guess, regardless of the
outcome," he said.
 Some experts, including Osborne, feel the central bank may
be set to announce its first rate cut since 2004.
 But a Reuters poll taken on Friday showed eight of Canada's
13 primary securities dealers expect the central bank will
leave rates steady on Tuesday.
 Before Friday, market analysts had been more or less split
in their 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, almost all dealers expect an interest rate
cut in January.
 Since the currency's rapid rise to hit a modern-day high of
US$1.1049 on Nov. 7, several central bank officials and senior
government officials have expressed concern about the harm its
ascent has had on manufacturers and overall economic growth.
 Elsewhere, oil prices recovered from a five-week low,
closing just under $90 a barrel, but were still more than 10
percent below the Nov. 21 peak of $99.29 a barrel. Canada is a
major oil producer and exporter and the currency is often
influenced by commodity prices.
 Canadian bond prices, lacking any key domestic data, rose
on credit concerns along with the larger U.S. market.
 Investors have been nervous about the state of the credit
market and are betting on an interest rate cut by the U.S.
Federal Reserve next week, which would be positive for bonds.
 Some slightly weak U.S. data, along with a losing day on
stock markets helped drive the rally in treasuries and bonds,
said James Dutkiewicz, who oversees about C$5 billion in
fixed-income assets in Toronto for CI Investments Inc.
 The two-year bond rose 19 Canadian cents to C$101.31 to
yield 3.561 percent. The 10-year bond climbed 67 Canadian cents
to C$100.83 to yield 3.892 percent.
 The yield spread between the two-year and 10-year bond
moved to 33.1 basis points from 32.1 basis points at the
previous close.
 The 30-year bond surged C$1.45 to C$115.83 to yield 4.073
percent. In the United States, the 30-year treasury yielded
4.334 percent.
 The three-month when-issued T-bill yielded 3.91 percent,
down from 3.92 percent at the previous close.
 (Editing by Rob Wilson)