Canadian dollar ends flat despite big drop in oil

Tue Jul 8, 2008 4:45pm EDT
 
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 * Currency rallies from a session low
 * Traders await Friday's key June jobs data
 * Bonds slide ahead of Bank of Canada auction
 By Frank Pingue
 TORONTO, July 8 (Reuters) - The Canadian dollar rallied
from an early retreat on Tuesday to close just a touch lower
against the greenback, as oil prices tumbled further from last
week's record highs, but the currency's move was limited ahead
of key domestic jobs data due later this week.
 Bond prices fell ahead of Wednesday's Bank of Canada
auction and on further talk of interest rate hikes.
 The Canadian dollar closed at C$1.0191 to the U.S. dollar,
or 98.13 U.S. cents, down from C$1.0189 to the U.S. dollar, or
98.15 U.S. cents, at Monday's close.
 The blame for the currency's decline rested on oil prices,
which slid $5.33 to settle at $136.04, pushing the price of
crude further away from last week's record high near $146 a
barrel.
 "Oil prices came off so it might have provided a bit of
pressure on the Canadian dollar, however the move has been
fairly limited," said Paul Ferley, assistant chief economist at
Royal Bank of Canada.
 "But in some ways it's surprising if the Canadian dollar is
going to trade with oil prices that we didn't even see a bigger
move, given the extent of the falloff in oil."
 The Canadian dollar spent the session in a range between
C$1.0232 and C$1.0175 to the U.S. dollar, or 97.73 and 98.28
U.S. cents.
 While oil prices weighed on the commodity-linked currency,
the link between the two has diminished considerably since last
year when oil prices were a key driver behind its 17.5 percent
rise.
 Either way, moves by the Canadian dollar are likely to be
limited ahead of the key report of the week -- domestic jobs
data for June -- due out on Friday.
 The June employment figures, the last piece of data the
Bank of Canada will consider ahead of its next scheduled rate
decision on July 15, are expected to show the economy created
10,000 jobs in June with an unemployment rate of 6.1 percent.
 "With our employment numbers coming out at the end of this
week we may have financial markets just waiting for further
clues on the economy going into next week's fixed announcement
date," said Ferley.
 While the central bank is expected to leave its key
overnight rate steady, plenty of attention will be put on the
accompanying statement to see if the emphasis will remain on
inflation or if the characterization will be more balanced.
 BOND PRICES DOWN
 Bond prices ended lower across the curve as dealers
unloaded them with hopes of snapping them back up at a lower
price at Wednesday's Bank of Canada auction.
 The bank will auction C$2.5 billion of government of Canada
bonds with a coupon of 4.25 percent, due June 1, 2018.
 "If you're either a dealer bidding on the auction, or if
you're an investor wanting to buy the bonds, you want to buy
these things as cheaply as possible," said Sheldon Dong, fixed
income analyst at TD Waterhouse Private Investment.
 "So you try to knock the price prior to bidding on these
things. I think it's part of the normal gamesmanship more than
anything else."
 Another drag on bond prices was the Bank of Canada's
decision to not roll over a Purchase and Resale Agreement, and
its comments that the domestic market had improved since
April.
 The latest comments from the central bank were not a huge
surprise as they followed its Business Outlook Survey on
Monday, which pointed to increased inflationary risks and
spurred talk of interest rate hikes.
 The two-year bond dipped 9 Canadian cents to C$101.00 to
yield 3.200 percent. The 10-year bond was down 19 Canadian
cents at C$102.29 to yield 3.696 percent.
 The yield spread between the two-year and 10-year bond was
49.5 basis points, up from 52.0 at the previous close.
 The 30-year bond fell 21 Canadian cents to C$116.15 for a
yield of 4.047 percent. In the United States, the 30-year
treasury yielded 4.453 percent.
 The three-month when-issued T-bill yielded 2.48 percent,
down from 2.49 percent at the previous close.