Canadian dollar rallies to eke out minor gain

Wed Aug 13, 2008 4:36pm EDT
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 * Canadian dollar erases overnight loss, closes higher
 * Commodity prices credited with currency's latest rise
 * Bond prices get boost given potential for rate cuts
 By Frank Pingue
 TORONTO, Aug 13 (Reuters) - The Canadian dollar rose nearly
1 cent from its overnight low against the U.S. dollar, given a
lofty commodity price backdrop, but closed flat on Wednesday
due to the magnitude of the loss it had to overcome.
 Domestic bond prices, with no fresh Canadian data to sway
sentiment, finished lower across the curve as last week's jobs
report upped the possibility for a Bank of Canada interest rate
cut later this year.
 The Canadian dollar closed at C$1.0625 to the U.S. dollar,
or 94.12 U.S. cents, up from C$1.0628 to the U.S. dollar, or
94.09 U.S. cents, at Tuesday's close.
 While the currency was pretty much flat from the previous
close, it did rise as high as C$1.0619 to the U.S. dollar, or
94.17 U.S. cents, which was comfortably off its overnight low
of C$1.0717 to the U.S. dollar, or 93.31 U.S. cents.
 And after falling in seven straight sessions, the Canadian
dollar has now closed higher in back-to-back days for the first
time in nearly a month, and may have more winning sessions in
the near future.
 "It's probably a little bit undervalued at the moment, so
going forward in the next few weeks you can probably expect the
Canadian dollar to retrace some of the losses," said Matthew
Strauss, senior currency strategist at RBC Capital Markets.
 "But our medium-term forecast is still for the Canadian
dollar to remain weak, or even weaker than current levels."
 A string of softer than expected pieces of data in recent
weeks has been one reason why a number of economists have
lowered their forecasts for the Canadian dollar.
 On Wednesday, the rise in prices for oil, gold and many
base metals was getting credit for the currency's ability to
bounce off its earlier low since Canada is a major commodity
 With Friday's manufacturing sales data the sole domestic
report left to be released this week, it's expected the
currency will continue to be directed by further moves in
commodity prices and swings in the U.S. dollar.
 Bond prices all ended lower as investors rushed back into
stocks given the rise in commodity prices, while last week's
disappointing domestic jobs data convinced many experts the
next move by the Bank of Canada will be an interest rate cut.
 "This is one of the quietest weeks of the year for the bond
market next to around Christmas because it's a heavy vacation
period and there's not a lot of liquidity," said Sheldon Dong,
a fixed-income analyst at TD Waterhouse Private Investment.
 "But the Canadian bond market right now is pricing in a
Bank of Canada rate cut by October and it'll stand that way
until we get another piece of significant data coming out."
 Canada's economic calendar picks up next week with June
wholesale trade data on Tuesday, June retail sales data on
Wednesday and July consumer price index data on Thursday.
 The reports could offer some idea as to what the Bank of
Canada may do with interest rates at its last three scheduled
announcement dates in 2008 on Sept. 3, Oct. 21 and Dec 9.
 The two-year bond dropped 11 Canadian cents to C$101.68 to
yield 2.784 percent. The 10-year bond slipped 22 Canadian cents
to C$105.15 to yield 3.619 percent.
 The yield spread between the two-year and 10-year bond was
83.5 basis points, down from 107 basis points at the previous
 The 30-year bond fell 9 Canadian cents to C$116.31 for a
yield of 4.036 percent. In the United States, the 30-year
treasury yielded 4.573 percent.
 The three-month when-issued T-bill yielded 2.49 percent,
down from 2.50 percent at the previous close.