December 10, 2007 / 3:27 PM / 10 years ago

Dollar trickles lower, awaits Fed decision

TORONTO (Reuters) - The Canadian dollar finished almost unchanged against the greenback on Monday as comments from the Bank of Canada were unable to inspire a move ahead of the U.S. Federal Reserve interest rate decision on Tuesday.

<p>Newly pressed Canadian one dollar coins, also know as loonies, at the Royal Canadian Mint in Winnipeg November 14, 2007. The Canadian dollar slipped against the U.S. dollar on Monday as another multibillion dollar writedown on subprime mortgage exposure rattled nerves and amid cautious trading ahead of an expected interest rate cut by the U.S. Federal Reserve on Tuesday. REUTERS/Fred Greenslade</p>

Canadian bond prices ended lower across the curve as the sole piece of domestic economic data topped expectations and left little interest in safe-haven assets such as government debt.

The Canadian dollar closed at 99.41 U.S. cents, valuing a U.S. dollar at C$1.0059, down from Friday’s session close of 99.49 U.S. cents, or C$1.0051.

With no key data to inspire a move and comments from Bank of Canada Governor David Dodge consistent with his recent talk, traders avoided huge bets until hearing from the Fed on Tuesday. The market expects the Fed to cut its key rate by quarter-percentage point to 4.25 percent.

“The price action is best described as benign,” said Jack Spitz, director of foreign exchange at National Bank Financial. “The markets are not eager to take on added risk until it sees the communique coming from the Fed tomorrow.”

If the Fed does deliver on the widely expected rate cut, it would put Canadian and U.S. interest rates back on par at 4.25 percent following the Bank of Canada’s rate cut last week.

During a Toronto speech, Dodge said a lack of transparency in asset-backed securities means the unraveling of global financial market turmoil has taken longer than expected.

The speech and comments during the ensuing press conference were not enough to knock the Canadian dollar out of the 98.81 to 99.49 U.S. cent range it occupied during the session.

Dodge did say the decline in the Canadian dollar from its modern-day high of US$1.1039 in early November has brought it back to levels more consistent with historical patterns and would not force the bank’s hand when setting monetary policy.

The bank will next set monetary policy on January 22.

BONDS ENDS LOWER

Canadian bond prices were wedged lower after the sole piece of domestic data came in ahead of estimates, while stock markets also rallied and left little desire for government debt.

With no domestic economic data due until trade surplus numbers on Wednesday, it is expected Canadian bonds will get their direction from the bigger U.S. Treasuries market.

Canadian housing starts data for November rose slightly to a seasonally adjusted, annualized 227,900 units in November, from 227,600 units in October. That beat analysts’ expectations for 222,000 units, according to Reuters data.

The two-year bond fell 9 Canadian cents to C$101.92 to yield 3.758 percent. The 10-year bond dropped 24 Canadian cents to C$99.49 to yield 4.065 percent.

The yield spread between the two-year and 10-year bond moved to 30.7 basis points from 31.0 at the previous close.

The 30-year bond dipped 37 Canadian cents to C$113.44 to yield 4.201 percent. In the United States, the 30-year treasury yielded 4.618 percent.

The three-month when-issued T-bill yielded 3.90 percent, up from 3.89 percent at the previous close.

Reporting by Frank Pingue; Editing by Peter Galloway

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