Canadian dollar down ahead of rate announcement

Mon Oct 20, 2008 9:59am EDT
 
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 * Canadian wholesale trade falls more than expected
 * Focus on Tuesday's Bank of Canada rate announcement
 * Bonds clinging to slim gains on short end of curve
 By Frank Pingue
 TORONTO, Oct 20 (Reuters) -  The Canadian dollar was lower
versus the U.S. dollar on Monday morning ahead of comments from
Federal Reserve Chairman Ben Bernanke and the Bank of Canada's
interest rate announcement on Tuesday.
 Canadian bond prices were mostly flat across the curve, but
they were outperforming the slide in the bigger U.S. Treasury
market after data showed Canadian wholesale trade fell more
than expected in August.
 At 9:40 a.m. (1340 GMT), the Canadian unit was at C$1.1898
to the U.S. dollar, or 84.05 U.S. cents, down from C$1.1869 to
the U.S. dollar, or 84.25 U.S. cents, at Friday's close.
 With no major events in Canada to sway direction ahead of
the Bank of Canada's rate announcement, the currency's moves
were being dictated by the direction of the greenback.
 In the United States, traders were awaiting Federal Reserve
Chairman Ben Bernanke, who was expected to testify at the House
budget committee hearing at 10:00 a.m. (1400 GMT) on the
economic outlook and financial markets.
 "They're focusing on his comments to determine whether or
not he indicates there is going to be further monetary policy
action required in order to help rectify this dislocation we're
seeing in markets right now," said George Davis, chief
technical strategist at RBC Capital Markets.
 "And we've got the Bank of Canada announcement tomorrow so
really what (the Canadian dollar) has basically been doing is
just sort or trading off the broader moves of the U.S. dollar
in the interim."
 Nearly all of Canada's primary securities dealers expect
the bank to lower its key overnight rate on Tuesday as the
slowdown in the global economy shows little signs of easing.
 The bank's key rate is 2.50 percent after its unexpected
50-basis point cut on Oct. 8 in a coordinated move with other
central banks to help calm ailing financial markets.
 August wholesale trade figures released on Monday, which
showed a drop in sales of automotive products, did not trigger
any significant move in the currency.
 BONDS FLAT
 Canadian bond prices were slightly higher across the short
end of the curve, getting a boost from the wholesale trade
data, which fell by a steeper-than-expected 1.5 percent in
August from July.
 The rise on the short end was muted as the slide in the
bigger U.S. Treasury market influenced sentiment in Canada.
 "It continues to be a story where the U.S. is going to be
the market that moves by far more, and Canada just gets dragged
along to a lesser extent," said Eric Lascelles, chief economics
and rates specialist at TD Securities.
 "And to the degree we came out of the weekend without any
major announcements, without any reason for pessimism, you got
the U.S. selling off and Canada just lagging that action."
 The Canadian overnight Libor rate LIBOR01 was 3.0000
percent, down from 3.0667 percent on Friday.
 Friday's CORRA rate CORRA= was 2.5011 percent, up from
2.5057 percent on Thursday. The Bank of Canada publishes the
previous day's rate at around 9 a.m. daily.
 The two-year bond was up 2 Canadian cents at C$101.00 to
yield 2.261 percent. The 10-year bond was down 33 Canadian
cents at C$103.85 to yield 3.768 percent.
 The yield spread between the two-year and the 10-year bond
moved to 124 basis points from 123 basis points at the previous
close.
 The 30-year bond dropped 75 Canadian cents to C$112.85 to
yield 4.272 percent. In the United States, the 30-year Treasury
yielded 4.332 percent.
 (Editing by Peter Galloway)