4 Min Read
* Canadian dollar eases as oil price pressures
* Bonds rise as central banks in focus
* Political uncertainty in Ottawa grows
By Ka Yan Ng
TORONTO, Dec 4 (Reuters) - The Canadian dollar slipped against the U.S. dollar on Thursday in a backdrop of weakening oil prices, political uncertainty and risk aversion.
Rate cuts by central banks around the world and fears of recession put new life into the allure of safe-haven government bonds.
At 7:35 a.m., the Canadian dollar was at C$1.2614 to the U.S. dollar, or 79.28 U.S. cents, down from C$1.2535 to the U.S. dollar, or 79.78 U.S. cents, at Wednesday's close.
There was little initial reaction to the Bank of England's 100 basis point rate cut, which met market expectations.
"It wasn't really anything shockingly surprising in that respect. If anything we've seen a bounce higher in sterling after the fact. I think that's prevented a significant move to the topside in dollar/Canada," said George Davis, chief technical analyst at RBC Capital Markets.
"At the same time crude oil prices are still weaker."
The general theme of risk aversion -- which makes the U.S. dollar the "path of least resistance" -- is prevalent and weighing on the Canadian currency, he added.
The price of oil was off 2 percent below $46 [ID:nSP68559], putting pressure on the Canadian dollar. Canada is a major oil producer and exporter and its currency is often influenced by oil price moves.
A growing political crisis in Ottawa has also been in the background, though analysts are mixed on its impact on the Canadian dollar in the midst of the turmoil.
Canadian Prime Minister Stephen Harper is expected on Thursday to take the unprecedented step of seeking the suspension of Parliament so he can avoid defeat at the hands of the opposition. [ID:nN04373121]
Bond prices were higher across the board as a safe-haven bid was revived in the wake of massive rate cuts by central banks to shore up crumbling economies that appear headed for a deep recession.
The Bank of England slashed rates 100 basis points to 2.0 percent, the lowest level since 1951. [ID:nTAR005422] That cut followed Sweden's record 175 basis point cut, and New Zealand's 150 basis point reduction. Market attention will now turn to the European Central Bank's rate decision.
Meanwhile, market players were also preparing for the Canadian employment data for November on Friday, which is the last piece of major data before the Bank of Canada makes its next interest rate announcement on Dec. 9. U.S. employment figures, due Friday, are also in focus.
The two-year bond rose 1 Canadian cents to C$102.25 to yield 1.592 percent. The 10-year bond gained 42 Canadian cents to C$109.37 to yield 3.101 percent.
The yield spread between the two-year and 10-year bond was 158 basis points, up from 157 at the previous close.
The 30-year bond advanced 90 Canadian cents to C$121.80 to yield 3.748 percent. In the United States, the 30-year treasury yielded 3.0972 percent. (Reporting by Ka Yan Ng, Editing by Chizu Nomiyama)