July 30, 2008 / 2:20 PM / 9 years ago

Canadian dollar turns lower as greenback rallies

4 Min Read

TORONTO (Reuters) - The Canadian dollar was down versus a rallying U.S. dollar on Wednesday as oil prices eased and traders shrugged off Canadian economic data that topped estimates as they awaited the May gross domestic product report due Thursday.

Canadian bond prices were lower across the curve along with the bigger U.S. Treasury market due to upbeat data from both sides of the border, which curbed investor appetite for more secure assets.

At 9:50 a.m. EDT, the Canadian currency was at C$1.0253 to the U.S. dollar, or 97.53 U.S. cents, down from C$1.0238 to the U.S. dollar, or 97.68 U.S. cents, at Tuesday's close.

The Canadian dollar, which has been locked in a tight range versus the greenback all week, barely budged after a report showed Canadian producer prices rose by 1.3 percent in June from May, while the price of raw materials increased by 4.4 percent from May. Both figures were ahead of estimates.

"The industrial product prices data don't really play a big role in the Bank of Canada's policy, it tends to tell us more about corporate profitability than inflation pressure," said Doug Porter, deputy chief economist at BMO Capital Markets.

"Having said that, it's still definitely on the high side and notable that the Canadian dollar didn't really get any support from that."

As in recent weeks, it was ongoing pressure on oil prices and a stronger U.S. dollar that weighed on the Canadian dollar on Wednesday.

Traders were keeping an eye on oil prices, which slipped to $122 a barrel ahead of U.S. data that is expected to show rising fuel inventories and weak demand.

Oil prices were a key driver of the Canadian dollar last year as Canada is a major exporter of oil. But oil's impact this year has been sporadic and some days the currency has moved in the opposite direction from the commodity.

But moves in the currency were limited ahead of Canada's May gross domestic product report, which is due out on Thursday.

Bond Prices Stuck Lower

Canadian bond prices were down given the combination of stronger-than-expected Canadian data and a surprise gain in U.S. private payrolls.

U.S. bonds stumbled after the ADP National Employment Report showed companies added 9,000 jobs in July, compared with a revised 77,000 drop in June.

"Certainly we're getting the negative tone entering in through the U.S. market on a better than expected ADP," said Stewart Hall, market strategist at HSBC Canada.

Also, the U.S. Federal Reserve said it would extend a credit facility that it provides for primary dealers in a bid to boost liquidity in stressed financial markets. The central bank said it would withdraw the measures when it feels conditions in financial markets are no longer "unusual and exigent."

The overnight Canadian Libor rate was 3.000 percent, unchanged from Tuesday.

Tuesday's CORRA rate was 3.0009 percent, down from 3.0093 percent on Monday. The Bank of Canada publishes the previous session's rate at around 9 a.m. daily.

The two-year bond fell 7 Canadian cents to C$101.16 to yield 3.092 percent. The 10-year bond dropped 25 Canadian cents to C$103.55 to yield 3.813 percent.

The yield spread between the two-year and 10-year bond was 73.9 basis points, up from 73.1 basis points.

The 30-year bond dropped 43 Canadian cents to C$114.02 for a yield of 4.160 percent. In the United States, the 30-year treasury yielded 4.697 percent.

The three-month when-issued T-bill yielded 2.46 percent, unchanged from the previous close.

Editing by Peter Galloway

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