Canadian dollar hands back slice of recent gains

Fri Feb 29, 2008 9:49am EST
 
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 By Frank Pingue
 TORONTO, Feb 29 (Reuters) - The Canadian dollar backed off
its 3-month high versus the U.S. dollar on Friday morning as
economic data showed Canada fell into a current account deficit
in the fourth quarter.
 Domestic bond prices, which had followed the U.S. Treasury
market higher most of this week on weak U.S. data, built on
those gains due to nagging concerns about a U.S. recession.
 At 9:40 a.m. (1440 GMT), the Canadian currency was at
US$1.0222, valuing a U.S. dollar at 97.83 Canadian cents, down
from US$1.0241, valuing a U.S. dollar at 97.65 Canadian cents,
at Thursday's close.
 The dollar entered the session up 3.7 percent for the week,
due mainly to record high oil prices and a weak U.S. dollar,
but its rally has appeared to have run out of gas for now as
much of the bad news has been priced into the greenback.
 Data showed Canada dropped into a current account deficit
of C$513 million in the fourth quarter, steeper than the C$300
million deficit forecasted by analysts and the first shortfall
since the second quarter of 1999.
 "It's Friday, there's been a large run and there doesn't
seem to be a trigger for much of a run today, so as a result of
that you get some taking back from some of the moves over the
past few days which have been quite large," said David Watt,
senior currency strategist at RBC Capital Markets.
 "And going into the end of the week people are probably
going to get a little but more cautious over the next few days
because looking into next week there are a whole host of
central bank meetings."
 Central banks that are scheduled to set interest rates next
week include the Bank of Canada, the European Central Bank, the
Bank of England and Bank of Japan.
 With those rate announcements hanging over the market, the
domestic currency is not expected to make a run at the 3-month
high of US$1.0298, valuing a U.S. dollar at 97.11 Canadian
cents, that it reached during Thursday's North American
session.
 Last November the Canadian dollar shot to a modern-day high
of US$1.1039, valuing a U.S. dollar at 90.59 Canadian cents,
due to a slew of factors that included lofty commodity prices,
a weak U.S. dollar, upbeat domestic data and few expectations
for Bank of Canada rate cuts.
 BONDS RALLY
 Canadian bond prices were higher across the curve, adding
to gains recorded earlier this week, Thursday's comments from
U.S. Federal Reserve Chairman Ben Bernanke lingered.
 Bernanke warned earlier this week about the health of some
small U.S. banks, another suggestion that the U.S. economy is
struggling and that interest rate there may fall more.
 "We're seeing a continuation of the rally we've had over
the past few days as markets reassess the prospects for not
only a U.S. recession but perhaps a significant recession and a
potential lackluster recovery," said Michael Gregory, senior
economist at BMO Capital Markets.
 "There's probably potentially more Fed easing down the road
than what the market initially was pricing in and that's going
to spill over across the border."
 The overnight Canadian Libor rate LIBOR01 was 4.1000
percent, up from 4.0833 percent on Thursday.
 Thursday's CORRA rate CORRA= was 4.0029 percent, up from
3.9949 percent on Wednesday. The Bank of Canada publishes the
previous day's rate at around 9 a.m. daily.
 The two-year bond rose 15 Canadian cents to C$102.38 to
yield 2.838 percent. The 10-year bond gained 44 Canadian cents
to C$102.70 to yield 3.652 percent.
 The yield spread between the two- and 10-year bond was 81.4
basis points, up from 77.0 basis points at the previous close.
 The 30-year bond added 45 Canadian cents to C$115.75 to
yield 4.073 percent. In the United States, the 30-year Treasury
yielded 4.470 percent.
 The three-month when-issued T-bill yielded 3.12 percent,
down from 3.18 percent at the previous close.
 (Editing by Renato Andrade)