Canada dlr down as U.S. economic concerns linger

Wed Mar 19, 2008 8:49am EDT
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 By Frank Pingue
 TORONTO, March 19 (Reuters) - The Canadian dollar reversed
its overnight gain and fell versus the U.S. dollar on Wednesday
as the calm restored in financial markets after Tuesday's U.S.
Federal Reserve rate cut was short-lived.
 Domestic bond prices, with no key Canadian data to trigger
a move, followed the bigger U.S. Treasury market higher across
the curve as equity markets looked poised for a pullback.
 At 8:40 a.m. (1240 GMT), the Canadian dollar was at
US$1.0032, valuing a U.S. dollar at 99.68 Canadian cents, down
from US$1.0048, valuing a U.S. dollar at 99.52 Canadian cents,
at Tuesday's close.
 The Canadian dollar had rallied overnight, reaching a high
of US$1.0126, or 98.76 Canadian cents per U.S. dollar, as the
Fed rate cut on Tuesday helped boost market sentiment.
 But the domestic currency's rally during the Asian session
eventually fizzled as commodity prices fell and European stocks
turned lower as the relief provided by the Fed rate cut became
overshadowed by nagging concerns about the U.S. economy.
 "The strong finish on North American equity markets spilled
over into Asian markets and investors were willing to buy
riskier assets, so cyclical and commodity-based currencies like
the Canadian dollar benefited from that," said said Matthew
Strauss, senior currency strategist at RBC Capital Markets.
 "But less than 24 hours after the Fed cut, the underlying
fear about the health of the financial sector is very much back
in the market."
 The Fed cut its federal funds rate by 75 basis points to
2.25 percent and the move helped fuel a rally in equity markets
and restored some confidence in a market worried about the
threat of a U.S. recession.
 The Bank of Canada's key rate is 3.50 percent. A Reuters
poll taken after the Fed decision showed a slim majority of the
10 Canadian primary securities dealers surveyed expect the bank
to cut the rate by 50 basis points in April.
 Also weighing on the commodity-linked Canadian dollar was a
drop in oil prices from the record high reached earlier this
week and a 2 percent slide in gold prices. Oil and gold are two
key Canadian exports and often influence the direction of the
nation's currency.
 Canadian bond prices rose alongside the larger U.S. market
as investors appeared set to take profits after Tuesday's stock
market rally and pour their money into more secure assets like
government debt.
 "The tone in equity futures is weaker, likely due to profit
taking," said Sal Guatieri, senior economist at BMO Capital
Markets. "People realized that there still are underlying
problems in the U.S. housing market and economy that will take
some time to address."
 Domestic data that showed wholesale trade rose 2.6 percent
in January, more than twice the amount expected by analysts,
did not trigger a pullback in bond prices.
 The two-year bond was up 4 Canadian cents at C$102.95 to
yield 2.451 percent. The 10-year bond increased 22 Canadian
cents to C$104.24 to yield 3.456 percent.
 The overnight Canadian Libor rate LIBOR01 was at 3.6833
percent, down from 3.7166 percent on Tuesday.
 The yield spread between the two- and 10-year bonds was
100.4 basis points, down from 100.8 points at the previous
 The 30-year bond rose 45 Canadian cents to C$117.65 to
yield 3.973 percent. In the United States, the 30-year Treasury
yielded 4.305 percent.
 The three-month when-issued T-bill yielded 2.03 percent,
down from 2.04 percent at the previous close.
 (Editing by Renato Andrade)