TORONTO (Reuters) - The Canadian dollar dipped against the U.S. dollar on Monday as renewed confidence in the U.S. financial sector following the U.S. government’s takeover of the two biggest U.S. mortgage finance companies convinced investors to buy the greenback.
Canadian bond prices were mixed as investors considered the implications of the bailout of Freddie Mac FRE.N and Fannie Mae FNM.N.
The Canadian dollar ended the North American session at C$1.0647 to the U.S. dollar, or 93.92 U.S. cents, down from C$1.0633 to the U.S. dollar, or 94.05 U.S. cents, at Friday’s close.
The currency spent the session in a wide range of C$1.0551 to the U.S. dollar, or 94.78 U.S. cents, to C$1.0715, or 93.33 U.S. cents.
Freddie Mac and Fannie Mae own or guarantee half of all outstanding U.S. mortgage debt, and the government bailout gave the market confidence that even if the worst of the U.S. housing crisis was not over, it would be contained.
The Canadian dollar initially held its own against the rallying greenback. But as the U.S. dollar strengthened, commodity prices, which investors had been buying into for a lack of better alternatives, fell and the Canadian dollar came off with them.
Canada is a major exporter of many key commodities and its currency is often influenced by the direction of their prices.
Commodity prices and moves in the greenback will remain the main drivers of the Canadian dollar over the short term, said David Bradley, director of foreign exchange trading at Scotia Capital.
“If this (U.S.) dollar rally continues, then the Canadian dollar is going to come under more pressure and it’s very possible that we see levels towards the C$1.0750-C$1.0780 area,” Bradley said.
The news was not all bad for the Canadian dollar as it rose against most of the other major currencies, including the euro and the British pound.
A report that Canadian building permits rose 1.8 percent in July from June and beat estimates for a decline of 2 percent was largely ignored by the currency market.
Canadian bond prices were mixed as investors considered the implications of what the buyout of Freddie Mac and Fannie Mae would mean for the U.S. market.
“The Fed is going to have to be twice as cautious about hiking rates in the future because suddenly the government has a vested interest in Fannie and Freddie and keeping mortgage rates low and keeping home owners away from foreclosures and so on,” said Eric Lascelles, chief economics and rates strategist at TD Securities.
The two-year bond was up 1 Canadian cent at C$100.03 to yield 2.738 percent, while the 10-year slid 7 Canadian cents to C$106.23 to yield 3.488 percent.
The yield spread between the two-year and 10-year bond was 73.3 basis points, down from 76.0 basis points at the previous close.
The 30-year bond rose 16 Canadian cents to C$118.01 for a yield of 3.946 percent. In the United States, the 30-year Treasury yielded 4.280 percent.
The three-month when-issued T-bill yielded 2.42 percent, up from 2.40 percent at the previous close.
Reporting by John McCrank; Editing by Peter Galloway