April 15, 2008 / 9:02 PM / in 10 years

Dollar ekes out gain in lackluster session

TORONTO (Reuters) - The Canadian dollar closed flat versus the U.S. dollar on Tuesday in a lackluster session in which the positive impact of record high oil prices was erased by nagging concerns about the U.S. economy.

Bond prices, with no Canadian data to consider, finished lower across the curve as the latest data from the United States suggested further interest rate cuts there may not be as large as some analysts have forecast.

The Canadian dollar closed at C$1.0191 to the U.S. dollar, or 98.13 U.S. cents, up from C$1.0196 to the U.S. dollar, or 98.08 U.S. cents, at Monday’s close.

Much of the currency’s gain was attributed to a rally in oil prices to a record high near $114 a barrel, which helped lift the Canadian dollar since Canada is a key producer and exporter of oil.

But holding the Canadian dollar back from making a bigger run against the greenback was a rather tempered gain in U.S. equity markets, which have had a close link to the currency’s performance in recent months.

“The rally in the oil prices supported the Canadian dollar somewhat today, but as we’ve seen of late the Canadian dollar has been much more driven by changes in equity markets,” said Matthew Strauss, senior currency strategist at RBC Capital Markets.

“There was not any indication that the market has more confidence in the U.S. economy or more confidence in the global economy ... what we need is a good half- or 1-percentage point increase (in the Dow Jones industrial average), which could potentially indicate sentiment change.”

The Toronto Stock Exchange’s main index jumped 112 points on Tuesday, and the Dow Jones industrial average .DJI ended 60 points higher, but a good chunk of its O.49 percent gain was recorded in the session’s closing minutes.

Investors will get a fresh dose of Canadian data on Wednesday as February’s survey of manufacturing is scheduled for release. That will be followed by the more closely watched consumer price index data for March due out on Thursday.

BONDS FALL

Canadian bond prices ended lower due largely to economic data out of the United States that showed accelerating producer price inflation and caused bond investors to pare bets for Fed rate cuts.

U.S. data showed a bigger-than-expected rise in producer prices, and the New York Fed manufacturing index came in much higher than consensus expectations, reducing the safe-haven appeal of government debt.

“Perhaps the bond market is getting a little worried about inflation,” said Carlos Leitao, chief economist at Laurentian Bank of Canada in Montreal. “That was reinforced by the strong PPI number in the U.S.”

The two-year bond fell 14 Canadian cents to C$102.12 to yield 2.715 percent. The 10-year bond dipped 53 Canadian cents to C$102.85 to yield 3.629 percent.

The yield spread between the two- and 10-year bonds was 91.4 basis points, down from 91.4 at the previous close.

The 30-year bond slid C$1.03 to C$114.47 to yield 4.140 percent. In the United States, the 30-year Treasury yielded 4.442 percent.

The three-month when-issued T-bill yielded 2.42 percent, up from 2.38 percent at the previous close.

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