Canadian dollar rebounds to end flat, bonds rise

Tue Dec 18, 2007 5:02pm EST
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By Cameron French

TORONTO Dec 18 (Reuters) - The Canadian dollar ended little changed on Tuesday, rebounding from early-session losses despite tamer than expected November inflation.

Bond prices edged higher on the inflation data, which raised expectations of further Bank of Canada interest rate cuts.

The Canadian dollar finished at C$1.0055 to the U.S. dollar, or 99.45 U.S. cents, up slightly from C$1.0057 to the U.S. dollar, or 99.43 U.S. cents, at Monday's close.

The currency eased overnight and fell further immediately after the data, but then rebounded after bottoming out at C$1.0145, or 98.57 U.S. cents.

"It's still buy the Canadian dollar on dips," said David Watt, senior currency strategist at RBC Capital Markets.

"So we had that move that we saw after the CPI number get completely washed out, and most of the overnight selling of the Canadian dollar washed out as well."

The Canadian dollar hit its modern-day high of US$1.1039 on Nov. 7, but has since fallen back below parity as the Bank of Canada has cut interest rates and left the door open for further easing. Meanwhile, metals prices have also eased, eroding interest in Canada's relatively large resource sector.

But with many still thinking the U.S. dollar could lose ground if the U.S. economy takes a bigger hit from the subprime mortgage crisis, the future direction of the Canadian dollar has been increasingly hard to predict, said Watt.   Continued...