Canadian dollar bounces on manufacturing data

Fri Aug 15, 2008 10:18am EDT
 
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 * Canadian dollar lifts from overnight weakness after data
 * Manufacturing data stronger than expected in June
 * Bonds nearly unchanged, lag U.S. Treasuries
 By Ka Yan Ng
 TORONTO, Aug 15 (Reuters) - Stronger-than-expected Canadian
manufacturing figures helped lift the country's dollar from
overnight weakness versus the U.S. dollar on Friday, while bond
prices were nearly unchanged.
 At 10:07 a.m., the Canadian dollar was at C$1.0624 to the
U.S. dollar, or 94.13 U.S. cents, up from C$1.0633 to the U.S.
dollar, or 94.05 U.S. cents, at Thursday's close.
 The U.S. dollar rallied against many major currencies
overnight, including the Canadian dollar.
 But as data showed Canadian manufacturing sales rose by a
stronger-than-expected 2.1 percent in June from May, the
Canadian dollar gained as well, said Jack Spitz, managing
director of foreign exchange at National Bank Financial.
 "The Canadian dollar is rallying on the back of
better-than-expected manufacturing data," he said.
 The currency rose to C$1.0585 to the U.S. dollar, or 94.47
U.S. cents, immediately after the release of the data, but has
since pared gains. The strength in manufacturing, which
directly accounts for about one-fifth of all economic activity,
topped expectations of a 1 percent rise in sales.
 Doug Porter, deputy chief economist at BMO Capital Markets,
said the Canadian dollar, while initially weakening, has made
an important reversal.
 "Today's data certainly didn't hurt. I think the other
point here is that the Canadian dollar has been quietly holding
up better than some of the other currencies while the U.S.
dollar has been recovering," said Porter.
 "That's really shining through today."
 Market watchers will get more data next week, with the June
wholesale trade report on Tuesday, June retail sales data on
Wednesday and the July consumer price index release on
Thursday.
 The reports should give market participants some insight
into the Bank of Canada's upcoming interest rate decisions. Its
last three policy announcement dates this year are Sept. 3,
Oct. 21 and Dec 9.
 BOND PRICES
 Canadian bond prices were nearly unchanged across the
curve.
 Porter said Canadian bonds were lagging their U.S.
counterparts partially because of the strong manufacturing
figures and interest rate expectations.
 With the Canadian dollar softening recently, it might not
give the Bank of Canada quite as free a hand to cut rates as
the markets believe, Porter said.
 The two-year bond fell 1 Canadian cent to C$101.69 to yield
2.770 percent. The 10-year bond slipped 5 Canadian cents to
C$105.45 to yield 3.582 percent.
 The yield spread between the two-year and 10-year bond was
81.5 basis points, from 83.5 basis points at the previous
close.
 The 30-year bond added 17 Canadian cents to C$116.82 for a
yield of 4.010 percent. In the United States, the 30-year
treasury yielded 4.488 percent.
 The three-month when-issued T-bill yielded 2.55 percent, up
from 2.45 percent at the previous close.
 (Reporting by Ka Yan Ng; Editing by Jeffrey Jones)