Canadian dollar erases early fall and moves higher

Fri Apr 18, 2008 9:53am EDT
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 By Frank Pingue
 TORONTO, April 18 (Reuters) - The Canadian dollar bounced
back from an earlier low to move higher versus the U.S. dollar
on Friday despite weaker commodity prices and data that showed
wholesale trade in Canada unexpectedly fell in February.
 Domestic bond prices all but ignored the Canadian data and
were pinned lower across the curve as the market has started to
believe that the worst of the credit crisis may be over, which
has sapped demand for more secure assets.
 At 9:40 a.m. (1340 GMT), the Canadian unit was at C$1.0073
to the U.S. dollar, or 99.28 U.S. cents, up from C$1.0122 to
the U.S. dollar, or 98.79 U.S. cents, at Thursday's close.
 In a delayed reaction, the Canadian dollar rallied along
with the U.S. currency after Citigroup Inc, the largest U.S.
bank, surprised the market with earnings that were not as weak
as expected.
 But earlier, the domestic currency fell to C$1.0146 to the
U.S. dollar, or 98.56 U.S. cents, after data showed wholesale
trade fell 1.8 percent in February when the market was looking
for a 0.4 percent rise in wholesale activity during the month.
 That data knocked the currency from an overnight high that
had seen it rise to C$1.0026 to the U.S. dollar, or 99.74 U.S.
cents. The rallying U.S. dollar, which left out the Canadian
currency at first, also took its toll.
 "The big story was the rebound in the U.S. dollar which had
forged higher against ... most other currencies and the
Canadian dollar had gone along for the ride," said Doug Porter,
deputy chief economist at BMO Capital Markets.
 But the upbeat news out of the United States bodes well for
Canada since it relies heavily on the U.S. economy to consume
the bulk of its exports.
 The commodity-linked Canadian dollar did not receive any
support from the price of oil, which slipped from the record
high of $115 a barrel it touched earlier this week, or gold
futures, which tumbled 3 percent.
 Another factor weighing on the Canadian dollar is a looming
Bank of Canada rate cut that the market is considering a sure
bet for April 22, when the Bank of Canada is scheduled to
announce its rate decision.
 A Reuters poll taken after key inflation on Thursday showed
a large majority of Canada's primary securities dealers expect
the Bank of Canada to cut its key interest rate by 50 basis
points to 3 percent next week.
 Canadian bond prices were down alongside the bigger U.S.
Treasury market as the Citigroup results gave the market some
more hope that the worst of the credit crisis may be ending.
 Strong results from other top companies have the market
upping the chance for the U.S. Federal Reserve to cut its Fed
rate by 25 basis points at its April 29-30 meeting instead of
the previous expectations for a deeper 50-basis-point cut.
 "It's just the growing sense that the worst is over on the
credit crisis front that we are seeing creeping across U.S.
markets," said Porter. "So there's a huge backup in (U.S.)
treasury yields this week ... and that's spilling over big time
into Canadian markets today."
 The overnight Canadian Libor rate LIBOR01 was 3.4216
percent, up from 3.4017 percent on Thursday.
 Thursday's CORRA rate CORRA= was 3.4895 percent, up from
3.4858 percent on Wednesday. The Bank of Canada publishes the
previous day's rate at around 9 a.m. daily.
 The two-year bond was down 20 Canadian cents at C$101.67 to
yield 2.927 percent. The 10-year bond slipped 51 Canadian cents
to C$101.92 to yield 3.749 percent.
 The yield spread between the two- and 10-year bonds was
82.2 basis points, down from 84.9 at the previous close.
 The 30-year bond slipped 61 Canadian cents to C$113.64 to
yield 4.185 percent. In the United States, the 30-year treasury
yielded 4.574 percent.
 The three-month when-issued T-bill yielded 2.57 percent, up
from 2.55 percent at the previous close.
 (Reporting by Frank Pingue; Editing by Scott Anderson)