TORONTO (Reuters) - The Canadian dollar ended flat versus the U.S. dollar on Tuesday in a lackluster session during which economic data that showed March housing starts beat estimates had little impact on investor sentiment.
Canadian bond prices rose on the short end of the curve but trickled lower on the long end after minutes from the U.S. Federal Reserve’s latest meeting stoked fears about a recession.
The Canadian dollar closed at C$1.0140 to the U.S. dollar, or 98.62 U.S. cents, down from C$1.0133 to the U.S. dollar, or 98.69 U.S. cents, at Monday’s close.
The currency spent the session in a rather tight range of C$1.0160 to the U.S. dollar, or 98.43 U.S. cents, and C$1.0122 to the U.S. dollar, or 98.79 U.S. cents.
Data released early in the session showed housing starts in Canada fell less than the market had expected. And while that offered some proof of a resilient Canadian economy, it did little to spark a move in the Canadian dollar.
Instead, investors tried to gauge whether the worst of the latest financial market turmoil has passed, or whether further fallout from the U.S. economic slowdown lies ahead.
“The market is pausing here to get a sense of whether the slightly better tone in financial markets is indicative of the concerns easing in terms of the credit crunch or whether it’s once more a false bottom,” said Paul Ferley, assistant chief economist at BMO Capital Markets.
“So basically the market is trying to get a firmer sense in terms of the likely direction of both the economy and financial markets.”
Nagging concerns about what damage the U.S. economic downturn could have on Canada have kept the Canadian currency wedged in a rather tight range for months despite some upbeat economic figures and some robust prices for the energy and other commodities that Canada produces.
Canadian bond prices were given a boost on the short end of the curve after release of the latest minutes from the Fed, which showed a forecast for a contraction in the economy during the first half of the year as inflation increases.
“Certainly the Fed minutes provide reasons for caution here in the near term with the Fed indicating it is still concerned about weakness in the first half of the year and a likely decline in economic activity,” Ferley said.
“The comments by the Fed indicate, near term, the possibility of some bad news playing out, but possibly the longer end indicating some optimism that maybe the worst in terms of the concerns about credit quality has passed.”
The two-year bond rose 6 Canadian cents to C$102.02 to yield 2.772 percent. The 10-year bond dropped 16 Canadian cents to C$102.97 to yield 3.615 percent.
The yield spread between the two- and 10-year bonds was 84.3 basis points, up from 80.6 at the previous close.
The 30-year bond fell 72 Canadian cents to C$115.40 to yield 4.090 percent. In the United States, the 30-year treasury yielded 4.387 percent.
The three-month when-issued T-bill yielded 2.19 percent, up from 2.16 percent at the previous close.
Reporting by Frank Pingue; Editing by Peter Galloway