TORONTO (Reuters) - The Canadian dollar closed slightly lower against the U.S. dollar on Monday, as investors held off making any big moves ahead of a Bank of Canada interest rate announcement on Tuesday.
Canadian bond prices rose along with the larger U.S. market on credit concerns.
The Canadian dollar closed at 99.98 U.S. cents, valuing each U.S. dollar at C$1.0002, down from US$1.0000 at Friday's North American close.
There was little to influence moves in the currency, with no major domestic data on the docket, but that calm should give way to volatility on Tuesday with the Bank of Canada announcement, said Shaun Osborne, chief currency strategist at TD Securities.
"We've probably got about 50-50 (chance of an interest rate cut) priced into the market right now, so we're going to get some sort of movement tomorrow, I'd guess, regardless of the outcome," he said.
Some experts, including Osborne, feel the central bank may be set to announce its first rate cut since 2004.
But a Reuters poll taken on Friday showed eight of Canada's 13 primary securities dealers expect the central bank will leave rates steady on Tuesday.
Before Friday, market analysts had been more or less split in their expectations, but data showing the Canadian economy grew more than expected in the third quarter tipped sentiment in favor of no move in December.
Looking ahead, almost all dealers expect an interest rate cut in January.
Since the currency's rapid rise to hit a modern-day high of US$1.1049 on November 7, several central bank officials and senior government officials have expressed concern about the harm its ascent has had on manufacturers and overall economic growth.
Elsewhere, oil prices recovered from a five-week low, closing just under $90 a barrel, but were still more than 10 percent below the November 21 peak of $99.29 a barrel. Canada is a major oil producer and exporter and the currency is often influenced by commodity prices.
Canadian bond prices, lacking any key domestic data, rose on credit concerns along with the larger U.S. market.
Investors have been nervous about the state of the credit market and are betting on an interest rate cut by the U.S. Federal Reserve next week, which would be positive for bonds.
Some slightly weak U.S. data, along with a losing day on stock markets helped drive the rally in treasuries and bonds, said James Dutkiewicz, who oversees about C$5 billion in fixed-income assets in Toronto for CI Investments Inc.
The two-year bond rose 19 Canadian cents to C$101.31 to yield 3.561 percent. The 10-year bond climbed 67 Canadian cents to C$100.83 to yield 3.892 percent.
The yield spread between the two-year and 10-year bond moved to 33.1 basis points from 32.1 basis points at the previous close.
The 30-year bond surged C$1.45 to C$115.83 to yield 4.073 percent. In the United States, the 30-year treasury yielded 4.334 percent.
The three-month when-issued T-bill yielded 3.91 percent, down from 3.92 percent at the previous close.
Editing by Rob Wilson