UPDATE 1-Canadian dollar rises as BoC keeps rates steady

Tue Jun 10, 2008 10:37am EDT
 
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 (Recasts)
 * Canadian dollar recoups losses from overnight session
 * Bank of Canada unexpectedly leaves key rate steady
 * Bond prices extend recent losses, down across curve
 By Frank Pingue
 TORONTO, June 10 (Reuters) - The Canadian dollar was higher
versus the U.S. dollar on Tuesday as a surprise decision by the
Bank of Canada to hold its key interest rate steady allowed the
currency to storm back from its lowest level since April 1.
 Canadian bond prices were slapped lower across the curve as
the Bank of Canada signaled an end to its rate-cutting cycle,
which added to other upbeat central bank comments over the past
week that have weighed on bonds.
 At 10:20 a.m. (1420 GMT), the Canadian unit was at C$1.0209
to the U.S. dollar, or 97.95 U.S. cents, up from C$1.0216 to
the U.S. dollar, or 97.89 U.S. cents, at Monday's close.
 The currency, which dropped as low as C$1.0324 to the U.S.
dollar, or 96.86 U.S. cents, overnight, shot to C$1.0196 to the
U.S. dollar, or 98.08 U.S. cents, immediately after the Bank of
Canada rate announcement.
 The Bank of Canada left its overnight rate steady at 3.00
percent. That was a surprise. In a recent Reuters poll, all 12
of Canada's primary dealers had forecast a cut of 25 basis
points.
 "Even with the very dramatic move we had after the Bank of
Canada announcement, we're really not far away from where we
were yesterday afternoon. We basically just reversed the early
morning selloff," said Doug Porter, deputy chief economist at
BMO Capital Markets.
 "So it may have turned the tide for the Canadian dollar at
least for now, but whether this is a real change in direction
remains to be seen."
 In its statement, the Bank of Canada said there is now a
greater risk that inflation will be higher than it projected in
April due to stronger-than-expected global growth and commodity
prices.
 The Canadian dollar has been wedged in a tight range around
parity with its U.S. counterpart since November.
 BOND PRICES FALL
 Canadian bond prices were pinned lower after the Bank of
Canada rate announcement and extended losses from last week
when comments from U.S. Federal Reserve Chairman Ben Bernanke
suggested the Fed could raise rates to support the greenback
and staunch any inflation pressure.
 The remarks from Bernanke were followed by comments from
the European Central Bank, which said interest rates in the
euro zone could rise as soon as next week.
 "Bonds were getting hammered in any event even before
today's decision but this was just like a massive hammer blow
on top of Bernanke's hawkish talk and all the other factors
that have been weighing on the market in any event," Porter
said.
 The overnight Canadian LIBOR rate LIBOR01 was at 2.8467
percent, down from 2.9867 percent on Monday.
 Monday's CORRA rate CORRA= was 3.0008 percent, down from
3.0018 on Friday. The Bank of Canada publishes the previous
session's rate around 9 a.m. daily.
 The two-year bond was down 61 Canadian cents at C$100.67 to
yield 3.395 percent. The 10-year bond dropped 96 Canadian cents
to C$101.24 to yield 3.835 percent.
 The yield spread between the two-year and 10-year bond was
44.0 basis points, down from 63.2 at the previous close.
 The 30-year bond fell 76 Canadian cents to C$114.07 for a
yield of 4.160 percent. In the United States, the 30-year
Treasury yielded 4.655 percent.
 The three-month when-issued T-bill yielded 2.85 percent, up
from 2.56 percent at the previous close.