Canadian dollar rattled again by lower oil prices

Wed Jun 4, 2008 4:45pm EDT
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 * Canadian dollar drops for fourth straight session
 * Talk of pending interest rate cut weigh on currency
 * Bond prices down ahead of key jobs data due Friday
 By Frank Pingue
 TORONTO, June 4 (Reuters) - The Canadian dollar fell
against the U.S. dollar for a fourth straight session on
Wednesday due to another retreat in oil prices and a report
suggesting the Bank of Canada should continue cutting interest
 Canadian bond prices followed the U.S. Treasury market
lower across the curve after two pieces of U.S. economic data
topped estimates, but the slide was contained ahead of Friday's
key Canadian and U.S. jobs reports.
 The Canadian dollar closed at C$1.0183 to the U.S. dollar,
or 98.20 U.S. cents, down from C$1.0086 to the U.S. dollar, or
99.15 U.S. cents, at Tuesday's close.
 The currency fell to its lowest level in a month late in
the session and is down nearly 3 percent since last Thursday's
session close.
 Oil prices fell further from the record high reached last
month in what is starting to look like a trend, and that was
being blamed for the latest retreat in the commodity-linked
Canadian currency. Canada is a major oil producer and
 "I'd still be cautious about calling for an end to the
strength in oil prices but at least for the time being it looks
like some of the heat is coming out of the oil market," said
Doug Porter, deputy chief economist at BMO Capital Markets.
"And I think that's been the biggest influence today."
 Comments from U.S. Federal Reserve Chairman Ben Bernanke
late in the afternoon gave a bid to the U.S. dollar and were
enough to send the Canadian dollar to its lowest level since
May 5.
 Bernanke, in a speech at Harvard University, said rising
long-term inflation expectations were a significant concern for
 Another drag on the Canadian currency was a Organization
for Economic Co-operation and Development report that suggested
the Bank of Canada should continue to cut interest rates.
 "The market's already leaning extremely heavily in that way
anyway, but to have the OECD giving it the stamp of approval I
think just raises the chance that the bank may possibly cut
more than just next week," Porter said.
 The Bank of Canada is widely expected to cut its key rate
by 25 basis points to 2.75 percent when it makes a scheduled
rate announcement next Tuesday. For the its subsequent rate
announcement, on July 15, most Canadian primary dealers expect
no change in rates.
 Canadian bond prices, with no domestic economic reports to
influence a move, all ended lower as data from the United
States came in ahead of market expectations.
 The Institute for Supply Management's services index came
in at 51.7 for May, above the 50 level that separates growth
from contraction, and above estimates for 51.0. Also, ADP
Employer Services said its gauge of private-sector employment
rose unexpectedly for May.
 "Overall the economic data out of the U.S. were a little
bit better," Porter said. "And in the lead-up to Friday's
employment reports it looks like the markets are turning a
little bit more cautious."
 Containing the move in bond prices was hesitation among
dealers ahead of May employment reports for Canada and the
United States due on Friday.
 The Canadian economy is expected to have added 10,000 jobs
in May while the unemployment rate remained steady 6.1 percent,
according to Reuters Estimates.
 The two-year bond fell 5 Canadian cents to C$101.72 to
yield 2.855 percent. The 10-year bond dropped 13 Canadian cents
to C$102.75 to yield 3.638 percent.
 The yield spread between the two-year and 10-year bond was
78.3 basis points, up from 73.8 at the previous close.
 The 30-year bond fell 32 Canadian cents to C$115.01 for a
yield of 4.109 percent. In the United States, the 30-year
Treasury yielded 4.695 percent.
 The three-month when-issued T-bill yielded 2.54 percent,
down from 2.58 percent at the previous close.
 (Editing by Peter Galloway)