CANADA FX DEBT-C$ slips as oil drops, market eyes Fed

Mon Apr 26, 2010 4:45pm EDT
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 * Ends at C$1.0014 to U.S. dollar, or 99.86 U.S. cents
 * No domestic data, bonds largely flat across curve
 (Updates to close, adds quotes)
 By Jennifer Kwan
 TORONTO, April 26 (Reuters) - The Canadian dollar limped
lower against the U.S. currency on Monday, pressured by weaker
oil prices as much of the market was sidelined ahead of an
interest rate decision by the U.S. Federal Reserve this week.
 Oil fell below $85 a barrel as concerns about Greece's debt
woes boosted the U.S. dollar, and as the oil market girded for
word of further growth in inventories in the United States, the
world's top energy consumer. [O/R]
 In its Wednesday announcement, the U.S. central bank's
Federal Open Market Committee (FOMC) is expected to hold rates
near zero and repeat its vow to maintain an extended period of
low rates, but investors remained wary. [ID:nN2298630]
 "Investors are more or less sitting on their hands, if
anything, playing the cautious game ahead of the FOMC interest
rate decision," said Millan Mulraine, senior macro strategist
at TD Securities.
 "There always is the possibility of something changing in
the language that would indicate in some ways to the market
that the Fed is likely to move in one direction or the other,"
he added.
 Canada's central bank surprised markets last week by
dropping its conditional pledge to keep its key rate at its
current low level of 0.25 percent to the end of June, sending
the Canadian dollar and domestic bond yields higher.
 Currencies usually strengthen as interest rates rise as
higher rates attract capital flows.
 The Canadian dollar CAD= finished at C$1.0014 to the U.S.
dollar, or 99.86 U.S. cents, down from Friday's finish at
C$0.9991 or $1.0009.
 With no domestic economic data to influence moves, Canadian
bond prices were mostly flat as investors awaited gross
domestic product data in Canada later in the week [ECONCA], as
well as the Fed announcement, said Roger Quick, director of
fixed-income research at Scotia Capital.
 Quick said markets will look closely for any clues that the
U.S. central bank is going to sell any of its assets
[ID:nN23118262], as well as for any changes in its language
around interest rates.
  "What kind of change do they make to their language, and
in particular the phrase that rates are going to be on hold for
an extended period?"
  "At some point they're going to have to modify that or
drop it."
 The two-year Canadian government bond CA2YT=RR was up 1
Canadian cent at C$99.14 to yield 1.979 percent, while the
10-year bond CA10YT=RR was up 12 Canadian cents to C$100.52
to yield 3.682 percent.
 Canadian government bonds mostly outperformed U.S. issues,
with the 10-year yield 13 basis points below its U.S.
counterpart, compared with around 12 basis points the previous
 Ontario sold C$600 million of bonds on Monday, while Quebec
sold C$500 million. [CAN-TNC]
 (Reporting by Jennifer Kwan; editing by Peter Galloway)