Canadian dollar down after early-morning selloff

Fri Mar 14, 2008 9:34am EDT
 
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 By Frank Pingue
 TORONTO, March 14 (Reuters) - The Canadian dollar fell more
than a cent versus the U.S. dollar on Friday in one swift move
after a bout of profit taking was exaggerated in thin market
conditions ahead of the weekend.
 Domestic bond prices, with no key Canadian economic data to
consider, followed the bigger U.S. Treasury market up across
the curve as U.S. data missed expectations.
 At 9:20 a.m. (1320 GMT), the Canadian currency was at
US$1.0053, valuing a U.S. dollar at 99.47 Canadian cents, down
from US$1.0146, valuing a U.S. dollar at 98.56 Canadian cents,
at Thursday's session close.
 The Canadian dollar was a touch higher during the overnight
session until a quick early-morning selloff knocked it down to
US$1.0032, or 99.68 Canadian cents per U.S. dollar, as some
investors saw a chance to pocket some gains.
 Given the backdrop of lofty prices for oil and gold, two of
Canada's key exports, and expectations for stock markets to
open higher, the currency's fall was pegged to profit-taking
after hitting its highest level in nearly a week on Thursday.
 "We heard some European names that were selling the
Canadian dollar and it doesn't sound like it was in huge
volumes, but in illiquid markets it is like pushing on an open
door," said David Watt, senior currency strategist at RBC
Capital Markets.
 "But until we break out of the recent range you can't call
a directional move one way or the other, we are just bouncing
between support and resistance so that just tells me that the
currency lacks overall direction."
 The latest Canadian data showed labor productivity dropped
0.8 percent in the fourth quarter from the previous quarter,
its biggest quarterly decline since 1995.
 The data followed other economic reports earlier this week
that showed Canada's trade surplus and new housing prices rose
more than expected, while capacity use slid to an 11-year low
in the fourth quarter.
 The Canadian currency has been bounced around in a range of
US$1.0016 and US$1.0267 for the past two weeks given a mix of
strong domestic data and commodity prices as well as nagging
concerns about what impact a U.S. economic slowdown will have
on Canada.
 "It lacks overall direction and until we get a break one
way or another I am not going to start thinking that we are in
either a Canadian dollar bullish or Canadian dollar bearish
environment," said Watt.
 BONDS RISE
 Canadian bond prices added to recent gains given the weak
domestic data and a U.S. report that showed February headline
consumer price inflation was unexpectedly flat.
 The two reports kept investors interested in the security
offered by government debt.
 "You've got the incredibly soft U.S. inflation report ...
so you are getting the classic response which is bonds rallying
in combination with a flattening of the curve," said Eric
Lascelles, chief economics and rates strategist at TD
Securities.
 The overnight Canadian Libor rate LIBOR01 was 3.5816
percent, down from 3.6000 percent on Thursday.
 Thursday's CORRA rate CORRA= was 3.4798 percent, down
from 3.4836 on Wednesday. The Bank of Canada publishes the
previous day's rate at around 9 a.m. daily.
 The two-year bond was up 2 Canadian cents at C$102.85 to
yield 2.525 percent. The 10-year bond rose 8 Canadian cents to
C$103.88 to yield 3.503 percent.
 The yield spread between the two- and 10-year bond was 97.8
basis points, up from 97.3 points at the previous close.
 The 30-year bond rose 36 Canadian cents to C$116.91 to
yield 4.011 percent. In the United States, the 30-year Treasury
yielded 4.378 percent.
 The three-month when-issued T-bill yielded 2.30 percent,
down from 3.30 percent at the previous close.
 (Editing by Renato Andrade)