Canadian dollar follows oil prices slightly lower

Tue May 13, 2008 8:04am EDT
 
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 * Canadian dollar down after easing in overnight session
 * Canadian dollar weakness pegged to strong U.S. dollar
 * U.S. data in focus given bare domestic economic calendar
 By Frank Pingue
 TORONTO, May 13 (Reuters) - The Canadian dollar was down
slightly versus the U.S. dollar on Tuesday as oil prices backed
away from a record high while the U.S. dollar strengthened
ahead of a slew of U.S. economic reports.
 Domestic bond prices were mixed across the curve ahead of
data from the United States that is widely expected to dictate
direction in Canada where no data will be released.
 At 7:55 a.m. (1155 GMT), the Canadian unit was at C$1.0066
to the U.S. dollar, or 99.34 U.S. cents, down from C$1.0044 to
the U.S. dollar, or 99.56 U.S. cents, at Monday's close.
 Part of the commodity-linked currency's decline was pegged
to a drop in oil prices to below $124 a barrel as investors
took profit after oil rallied to a record high above $126 a
barrel during Monday's session.
 Also weighing on the Canadian dollar was a stronger U.S.
currency on speculation the U.S. Federal Reserve may be nearing
the end of its aggressive interest rate-cutting cycle.
 "The market couldn't pick out a clear direction yesterday
but it looks like from overnight the U.S. dollar in general is
a bit stronger and I think that's carried on (against the
Canadian dollar)," said Steve Butler, director of foreign
exchange trading at Scotia Capital.
 "And the oil/Canada correlation is going to become more in
focus because everyone is talking about oil now and watching it
like a hawk every dollar it goes up and down."
 Canada is a key producer and exporter of oil and its
currency often trades in sync with the price of oil, though
that link has lessened somewhat this year.
 Direction for the Canadian dollar during Tuesday's session
will largely come from events in commodity markets and the
movements in the greenback given the bulk of economic data due
out in the United States.
 The U.S. economy consumes over three-quarters of Canada's
exports, so the health of the U.S. economy has big implications
for the domestic economy.
 The next Canadian data due is the survey of manufacturing
for March on Thursday.
 BONDS MIXED
 Bond prices, taking a cue from the bigger U.S. Treasury
market, were down on the short end of the curve and higher on
the long end ahead of a key U.S. economic report at 8:30 a.m.
that is expected to show a dip of 0.1 percent in retail sales
for April.
 Bond dealers also awaited details from speeches by no fewer
than seven Federal Reserve officials, including Chairman Ben
Bernanke, later in the day.
 On Monday, domestic bonds gave back some sharp gains toward
the end of the session as strength in equities spurred a shift
in assets to stocks and lifted the Toronto Stock Exchange's
main index to a record high.
 The two-year bond was down 3 Canadian cents at C$101.99 to
yield 2.743 percent. The 10-year was up 13 Canadian cents at
C$103.50 to yield 3.543 percent.
 The yield spread between the two- and 10-year bonds was
80.0 basis points, down from 83.2 at the previous close.
 The 30-year bond added 55 Canadian cents to C$116.50 for a
yield of 4.030 percent. In the United States, the 30-year
treasury yielded 4.510 percent.
 The three-month when-issued T-bill yielded 2.67 percent,
unchanged from the previous close.
 (Editing by Bernadette Baum)