Canadian dollar sags against rebounding greenback

Fri Mar 7, 2008 5:19pm EST
 
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 By John McCrank
 TORONTO, March 7 (Reuters) - The Canadian dollar fell
against a rebounding U.S. dollar on Friday as the stronger
greenback combined with a negative global growth outlook to
take the market's attention away from a much
stronger-than-expected Canadian employment report.
 Bond prices fell on the short end as the stellar jobs
report had some investors paring back bets on how aggressive
the Bank of Canada will be in cutting interest rates when it
next sets monetary policy.
 The Canadian dollar closed at US$1.0105, valuing a U.S.
dollar at 98.96 Canadian cents, down from US$1.0132, or 98.70
Canadian cents, at Thursday's close.
 The currency started the North American session strongly,
surging to its highest point in over a week, at US$1.0267,
valuing a U.S. dollar at 97.40 Canadian cents, after the
employment report.
 Data from Statistics Canada showed that the economy added
43,300 jobs last month, easily beating market forecasts for a
gain of 8,000 amid signs of softer growth.
 But then two broader themes combined to soften the Canadian
dollar against the greenback, said Matthew Strauss, senior
currency strategist at RBC Capital Markets.
 "One was some U.S. dollar strength... and then we had the
equity markets and commodities turning negative during the
course of the day as well, which weighed on cyclical, or
commodity-based currencies."
 The U.S. dollar rose despite a U.S. employment report,
which in stark contrast to the Canadian situation, showed that
country's economy shed 63,000 jobs, the biggest monthly job
decline in nearly five years.
 That sent the euro to a record high against the greenback,
but the inability for euro-dollar to pass some key technical
levels led to significant profit-taking for the currency pair,
benefiting the greenback, Strauss said.
 The U.S. currency was given a further boost when the U.S.
Federal Reserve injected $100 billion into the market to help
ease liquidity concerns. That fueled speculation that the Fed
may hold off on cutting interest rates as aggressively as the
market has been expecting, as it may seek other ways to ease
pressures on the U.S. economy.
 However, the liquidity injection was not enough take the
attention of the North American stock markets off the U.S.
employment numbers and the weaker equities drove
commodity-based currencies, such as the Canadian dollar,
lower.
 For the week, the Canadian dollar ended down 0.5 percent.
 BONDS MIXED
 Canadian bond prices fell on the short end of the curve as
the solid Canadian jobs data caused investors to doubt whether
the Bank of Canada would have to be as aggressive as once
thought in cutting interest rates to keep domestic demand
strong.
 Earlier this week the Bank of Canada cut its key rate by 50
basis points to 3.50 percent and said the balance of risks
around its January projection for inflation have clearly
shifted to the downside.
 Many in the market had forecast another 50 basis-point
interest rate cut when the Bank of Canada makes its next rate
announcement in April, but those bets were being pared back,
sending the short end of the curve lower, said Sheldon Dong,
fixed income analyst at TD Waterhouse Private Investment.
 The two-year bond dropped 10 Canadian cents to C$102.80, to
yield 2.573 percent. The 10-year bond slipped 2 Canadian cents
to C$103.43 to yield 3.559 percent.
 The yield spread between the two- and 10-year bond was 98.6
basis points, down from 103.0 points at the previous close.
 The 30-year bond rose 23 Canadian cents to C$115.88 to
yield 4.066 percent. In the United States, the 30-year Treasury
yielded 4.543 percent.
 The three-month when-issued T-bill yielded 2.47 percent,
down from 2.59 percent at the previous close.
 (Editing by Peter Galloway)