Canada dlr rises as market adjusts to BoC decision

Wed Jun 11, 2008 10:01am EDT
 
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 * Canadian dollar rises 0.6 percent against greenback
 * Domestic data weaker than expected
 * Bond prices rise, helped by soft data
 By John McCrank
 TORONTO, June 11 (Reuters) - The Canadian dollar rose 0.6
percent against the U.S. dollar on Wednesday, as investors
adjusted to the Bank of Canada's unexpected decision to keep
interest rates steady on Tuesday.
 Domestic bond prices recouped some of their recent losses,
helped by some weaker-than-expected data.
 At 9:36 a.m. (1336 GMT), the Canadian dollar was at
C$1.0159 to the U.S. dollar, or 98.43 U.S. cents, down from
C$1.0224 to the U.S. dollar, or 97.81 U.S. cents, at Tuesday's
close.
 During the overnight session, the currency hit a low of
C$1.0246, or 97.60 U.S. cents, before climbing to its current
levels.
 "The markets are still sort of digesting the implications
of the Bank of Canada leaving interest rates unchanged," said
George Davis, chief technical strategist at RBC Capital
Markets.
 The Bank of Canada left its key lending rate steady at 3.00
percent on Tuesday, stymieing market expectations for a
quarter-point cut. All 12 of Canada's primary dealers in a
recent Reuters poll had forecast a 25-basis-point cut.
 "The bank's rate decision was driven largely by mounting
concerns about inflation," said Davis, adding that the move was
part of a global trend.
 Last week, U.S. Federal Reserve Chairman Ben Bernanke was
on the record more than once saying that a weak U.S. dollar was
adding to inflationary pressures. The jawboning continued with
European Central Bank President Jean-Claude Trichet, who warned
that interest rates in Europe may go up as the ECB moves to
stamp out rising inflation.
 In the statement accompanying its decision, the Bank of
Canada said inflation may be higher than it projected in April
because global growth and commodity prices have been higher
than anticipated.
 Those inflationary pressures were not seen in the data
released Wednesday though, as industrial capacity utilization
rates for the first-quarter of 2008 came in at its slowest rate
in 15 years as the auto and wood products industries were hit
by the U.S. economic downturn.
 While another report showed the annual rise in new housing
prices in Canada slowed to 5.2 percent in April, its weakest
pace since September 2005, as the sizzling real estate markets
in some western cities slowed.
 Upcoming economic reports include the survey of
manufacturing for April, along with labor productivity, hourly
compensation and unit labor cost data for the first-quarter on
Friday.
 BONDS RISE
 Canadian bond prices rose, helped by a technical bounce
following the huge losses in recent sessions.
 The weaker-than-expected domestic data also helped bond
prices rise, as it increased the safe haven bid for government
debt, said Sal Guatieri, senior economist at BMO Capital
Markets
 "The new housing price index was flat in the month of April
and I think that was only the second time it was flat in the
past seven years."
 The overnight Canadian LIBOR rate LIBOR01 was at 2.9783
percent, up from 2.8467 percent on Tuesday.
 Tuesday's CORRA rate CORRA= was 3.0013 percent, up from
3.0008 on Monday. The Bank of Canada publishes the previous
session's rate around 9 a.m. daily.
 The two-year bond rose 14 Canadian cents to C$100.81 to
yield 3.321 percent. The 10-year bond climbed 27 Canadian cents
to C$101.45 to yield 3.807 percent.
 The yield spread between the two-year and 10-year bond was
48.6 basis points, down from 45.2 at the previous close.
 The 30-year bond added 30 Canadian cents to C$114.15 for a
yield of 4.155 percent. In the United States, the 30-year
Treasury yielded 4.693 percent.
 The three-month when-issued T-bill yielded 2.80 percent,
unchanged from the previous close.
 (Reporting by John McCrank; Editing by Scott Anderson)