Canada dollar trickles lower, awaits Fed decision

Mon Dec 10, 2007 4:53pm EST
 
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 By Frank Pingue
 TORONTO, Dec 10 (Reuters) - The Canadian dollar finished
almost unchanged against the greenback on Monday as comments
from the Bank of Canada were unable to inspire a move ahead of
the U.S. Federal Reserve interest rate decision on Tuesday.
 Canadian bond prices ended lower across the curve as the
sole piece of domestic economic data topped expectations and
left little interest in safe-haven assets such as government
debt.
 The Canadian dollar closed at 99.41 U.S. cents, valuing a
U.S. dollar at C$1.0059, down from Friday's session close of
99.49 U.S. cents, or C$1.0051.
 With no key data to inspire a move and comments from Bank
of Canada Governor David Dodge consistent with his recent talk,
traders avoided huge bets until hearing from the Fed on
Tuesday. The market expects the Fed to cut its key rate by
quarter-percentage point to 4.25 percent.
 "The price action is best described as benign," said Jack
Spitz, director of foreign exchange at National Bank Financial.
"The markets are not eager to take on added risk until it sees
the communique coming from the Fed tomorrow."
 If the Fed does deliver on the widely expected rate cut, it
would put Canadian and U.S. interest rates back on par at 4.25
percent following the Bank of Canada's rate cut last week.
 During a Toronto speech, Dodge said a lack of transparency
in asset-backed securities means the unraveling of global
financial market turmoil has taken longer than expected.
 The speech and comments during the ensuing press conference
were not enough to knock the Canadian dollar out of the 98.81
to 99.49 U.S. cent range it occupied during the session.
 Dodge did say the decline in the Canadian dollar from its
modern-day high of US$1.1039 in early November has brought it
back to levels more consistent with historical patterns and
would not force the bank's hand when setting monetary policy.
 The bank will next set monetary policy on Jan. 22.
 BONDS ENDS LOWER
 Canadian bond prices were wedged lower after the sole piece
of domestic data came in ahead of estimates, while stock
markets also rallied and left little desire for government
debt.
 With no domestic economic data due until trade surplus
numbers on Wednesday, it is expected Canadian bonds will get
their direction from the bigger U.S. Treasuries market.
 Canadian housing starts data for November rose slightly to
a seasonally adjusted, annualized 227,900 units in November,
from 227,600 units in October. That beat analysts' expectations
for 222,000 units, according to Reuters data.
 The two-year bond fell 9 Canadian cents to C$101.92 to
yield 3.758 percent. The 10-year bond dropped 24 Canadian
cents to C$99.49 to yield 4.065 percent.
 The yield spread between the two-year and 10-year bond
moved to 30.7 basis points from 31.0 at the previous close.
 The 30-year bond dipped 37 Canadian cents to C$113.44 to
yield 4.201 percent. In the United States, the 30-year treasury
yielded 4.618 percent.
 The three-month when-issued T-bill yielded 3.90 percent, up
from 3.89 percent at the previous close.
 (Reporting by Frank Pingue; Editing by Peter Galloway)