Canada dlr dips as investors await inflation data

Wed Jun 18, 2008 9:46am EDT
 
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 * Canadian dollar slips 0.3 percent against greenback
 * Thursday's CPI data and Bank of Canada speech in focus
 * Bond prices rise in response to slipping stocks
 By John McCrank
 TORONTO, June 18 (Reuters) - The Canadian dollar slipped
0.3 percent against the U.S. dollar on Wednesday, but remained
in a tight range ahead of key data later in the week and an
interest rate decision by the U.S. Federal Reserve next week.
 Domestic bond prices followed U.S. Treasuries higher.
 At 9:24 a.m. (1324 GMT), the Canadian dollar was at
C$1.0199 to the U.S. dollar, or 98.05 U.S. cents, down from
C$1.0171 to the U.S. dollar, or 98.32 U.S. cents, at Tuesday's
close.
 In the overseas session, the currency traded in a tight
range of C$1.0212 and C$1.0172, as traders were unsure which
way to take it ahead of Thursday's domestic inflation report
and next week's U.S. Fed decision on interest rates.
 Inflation has been front and center in many investors'
minds as central banks worldwide attempt to balance slowing
global growth with spiking energy and food costs.
 Bank of Canada Governor Mark Carney held the bank's key
lending rate steady at 3.00 percent last week, citing rising
inflation, confounding expectations of Canada's primary
security dealers, who had unanimously expected the central bank
to ease rates.
 "The CPI report is either going to justify his (Carney's)
actions, or it might bring a lot of people to question what he
was thinking, so it is quite an important number tomorrow,"
said Steve Butler, senior currency strategist at Scotia
Capital.
 Carney will give a speech later on Thursday in Calgary,
where investors are hoping for an explanation of the bank's
last decision.
 "The last thing that any central banker wants is
uncertainty and people second guessing him and I think we're in
an age where the preference is to be much more transparent and
shocking the market is not the way to go," said Butler.
 "So I do think he probably has a little bit of explaining
to do."
 Another question holding the Canadian dollar in its tight
range is whether the Fed will raise its key lending rate next
week, after months of easing rates to stimulate economic
growth.
 "We had all kinds of crazy talk from Bernanke about
inflation, inflation, inflation and the market got all fired up
thinking we might see a hike from the Fed," said Butler.
 "I think people now are starting to wonder if it's worth
shutting down the economy because you're worried about
inflation."
 BOND PRICES RISE
 Canadian bond prices, with no major domestic economic
releases to key off, followed U.S. Treasuries higher.
 "Equities are off a bit in the U.S., so that helped U.S.
bonds somewhat," said Mark Chandler, fixed income specialist at
RBC Capital Markets.
 "We don't get any drivers, at least in Canada, until CPI
and Carney tomorrow, but realistically, we're in blackout
period for the Fed and it's really the FOMC statement that's
the next big hurdle."
 The Fed has slashed its key federal funds rate 325 basis
points to 2.00 percent since last year.
 Domestic data showed Canada's composite leading indicator
climbed 0.2 percent in May after coming in flat or negative for
the previous three months, buoyed by the housing sector and
stock prices. The market had expected a 0.1 percent rise in the
indicator, according to the median forecast in a Reuters
survey.
 The overnight Canadian Libor rate LIBOR01 was at 2.9800
percent, down from 3.0033 percent on Tuesday.
 Tuesday's CORRA rate CORRA= was 2.9896 percent, up from
3.0079 percent on Monday. The Bank of Canada publishes the
previous day's rate around 9 a.m. daily.
 The two-year bond climbed 3 Canadian cents to C$100.92 to
yield 3.258 percent. The 10-year bond gained 4 Canadian cents
to C$101.26 to yield 3.832 percent.
 The yield spread between the two-year and 10-year bond was
57.7 basis points, up from 56.2 at the previous close.
 The 30-year bond rose 7 Canadian cents to C$113.70 for a
yield of 4.179 percent. In the United States, the 30-year
treasury yielded 4.763 percent.
 The three-month when-issued T-bill yielded 2.68 percent,
down from 2.70 percent at the previous close.
 (Reporting by John McCrank; Editing by Scott Anderson)