April 10, 2008 / 9:15 PM / in 10 years

Dollar ends slide with small gain

TORONTO (Reuters) - The Canadian dollar ended a four-session skid with a slight gain against the U.S. dollar on Thursday, but upbeat trade data and comments from the Bank of Canada could not lift the currency out of its range.

Bond prices gave back early gains to finish the session lower across the curve as investors extended their recent charge back into equity markets.

The Canadian dollar closed at C$1.0188 to the U.S. dollar, or 98.15 U.S. cents, up from C$1.0190 to the U.S. dollar, or 98.14 U.S. cents, at Wednesday’s close.

Data released early in the session showed Canada’s trade surplus soared 78 percent in February, and while that helped to reduce some of the near-term fears for the economy it was not enough to trigger a significant move by the currency.

Instead, the Canadian dollar spent the session in a range of C$1.0225, or 97.80 U.S. cents, and C$1.0163, or 98.40 U.S. cents, as investors were uneasy holding the currency at the lower end of the session range.

“We’re just stuck in a range-trading scenario and it has caused people to reduce their focus on the Canadian dollar and follow and trade other currencies,” said George Davis, chief technical strategist at RBC Capital Markets.

“It’s made people a little tentative to get aggressively long dollar/Canada right now and as a result people are just stepping back for the time being.”

Conditions seemed ideal for the Canadian dollar to break out of its range as commodity prices remained near lofty levels, equity markets rallied and domestic data was strong.

But slow economic growth has spawned fears of a recession in the United States, which has hampered the currency’s performance because the Canadian economy relies on the United States as a market for the bulk of its exports.

A speech Bank of Canada Deputy Governor David Longworth also had no noticeable impact on the currency as he said the central bank would continue to monitor the effect of unusually tight credit conditions while setting its monetary policy.

Longworth’s speech marked the last public appearance by a Bank of Canada official ahead of its next interest rate announcement on April 22.

“The comments ... I don’t think provided the market with any significant new information, so as a result there wasn’t a significant reaction,” said Davis.

BONDS END DOWN

Bond prices followed the bigger U.S. market higher early in the session, as data showed the U.S. trade deficit widened unexpectedly, but they ended lower across the curve as stock markets lured investors out of more secure assets.

“You did start the day off with a rally and it was driven by the soft U.S. trade numbers, and Canada took part in that even though our own trade numbers were rather healthy,” said Eric Lascelles, chief economics and rates strategist at TD Securities.

“Since then, there has been a complete reversal, bonds have sold off, the curve is flattening and the motivation for that seems to be the traditional stock market strength story.”

The last piece of Canadian data due this week will be February’s new housing price index, due out on Friday.

The two-year bond fell 11 Canadian cents to C$102.07 to yield 2.745 percent. The 10-year bond dropped 48 Canadian cents to C$102.92 to yield 3.621 percent.

The yield spread between the two- and 10-year bonds was 87.6 basis points, up from 86.2 basis points at the previous close.

The 30-year bond slipped 93 Canadian cents to C$115.15 to yield 4.103 percent. In the United States, the 30-year treasury yielded 4.349 percent.

The three-month when-issued T-bill yielded 2.35 percent, up from 2.31 percent at the previous close.

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