Canadian dollar ends session, and week, lower

Fri Jul 4, 2008 4:24pm EDT
 
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 * Canadian currency ends week down nearly 1 percent
 * Trading muted as U.S. market shut for Independence Day
 * Bond prices get boost as interest rates seen steady
 By Frank Pingue
 TORONTO, July 4 (Reuters) - The Canadian dollar limped to a
lower close versus the U.S. dollar on Friday and capped off its
first losing week in three after a thin, quiet session in which
moves were amplified because U.S. markets were closed for
Independence Day.
 Canadian bond prices, which underperformed the U.S.
Treasury market all week, continued to benefit from pared
expectations for U.S. Federal Reserve interest rate hikes and
ended higher across the curve.
 The Canadian dollar closed at C$1.0200 to the U.S. dollar,
or 98.04 U.S. cents, down from C$1.0188 to the U.S. dollar, or
98.15 U.S. cents, at Thursday's close.
 For the week the Canadian dollar fell 0.9 percent.
 But the drop in the Canadian currency did not draw too much
concern in a week of trading made slow by the July 4 U.S.
holiday and Tuesday's Canada Day holiday.
 "Liquidity is much lower than usual and not surprisingly
the markets are illiquid," said Matthew Strauss, senior
currency strategist at RBC Capital Markets. "But the move that
we did see today in the Canadian dollar was more driven by
flows rather than any strong directional bids."
 That explains why the Canadian dollar rallied to C$1.0151
to the U.S. dollar, or 98.51 U.S. cents, during the first half
of the North American session before trickling lower.
 The only Canadian data to consider in the session, the Ivey
Purchasing Managers Index, showed business purchasing activity
increased more than expected in June but also signaled the jobs
market may be weakening.
 But the few traders in attendance in the muted session did
not show much interest in the data since the Bank of Canada's
Business Outlook Survey is due out Monday and the domestic June
jobs data on July 11.
 The June jobs figures, the last data the Bank of Canada
will consider ahead of its scheduled interest rate decision on
July 15, is expected to show the economy created 10,000 jobs in
June, while the unemployment rate was 6.1 percent.
 BOND PRICES RISE
 After underperforming U.S. Treasuries all week, Canadian
bonds managed to make up some ground with the U.S. Treasury
market closed and dealers still believing the U.S. Federal
Reserve is not set to raise interest rates.
 "This week the view started to shift towards more of a view
that the Fed is not going to raise rates any time soon," said
Carlos Leitao, chief economist at Laurentian Bank of Canada in
Montreal. "Inflation concerns are important, yes, but the (U.S.
economy) is still very week and hence the (Fed) is not going to
rock the boat."
 The Ivey Purchasing Managers Index showed Canadian business
purchasing activity rose to 69.6 in June from 62.5 in May. That
was better than market expectations for a reading of 62.0.
 The Ivey employment index dropped to 58.2 from 59.3 in the
previous month, while the prices index climbed to 84.1 from
82.9.
 The two-year bond rose 4 Canadian cents to C$101.04 to
yield 3.179 percent. The 10-year bond increased 25 Canadian
cents to C$102.18 to yield 3.710 percent.
 The yield spread between the two-year and 10-year bond was
53.1 basis points, down from 53.6 at the previous close.
 The 30-year bond rose 23 Canadian cents to C$115.95 for a
yield of 4.057 percent. In the United States, the 30-year
Treasury yielded 4.535 percent.
 The three-month when-issued T-bill yielded 2.49 percent,
down from 2.51 percent at the previous close.
 (Reporting by Frank Pingue; Editing by Peter Galloway)