Canadian dollar, bonds, flat ahead of Fed decision

Mon Jan 28, 2008 8:59am EST
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar was mostly unchanged versus the U.S. dollar on Monday morning as currency investors avoided huge bets ahead of key economic data and the U.S. Federal Reserve's rate decision due later this week.

Domestic bond prices were flat but likely to add to recent gains as North American stock markets look ripe for a volatile session that would heighten demand for the security offered by government debt.

At 8:40 a.m. ET, the Canadian unit was at C$1.0069 to the U.S. dollar, or 99.31 U.S. cents, up from C$1.0070 to the U.S. dollar, or 99.30 U.S. cents, at Friday's close.

The Canadian dollar was barely impacted by the Asian and European stock market declines overnight since it was preceded by Friday's North American equity selloff.

Instead, the Canadian dollar will be directed by moves in North American equity markets this week, which currency traders have been using as a guide for the global economic outlook.

"Because of its commodity-based status, traders are going to focus very much on equities as a guide for (the Canadian dollar)," said Matthew Strauss, senior currency strategist at RBC Capital Markets.

"And from that perspective the (Fed) meeting in the middle of the week will be very important, and at the end of the week the non-farm payrolls data out of the U.S. will be important for the equity market."

The Fed is expected to cut interest rates by as much as 50 basis points to 3.00 percent after a two-day policy meeting that ends on Wednesday.   Continued...

<p>A graph showing world interest rates from 2000 to now. REUTERS/Graphics</p>