TORONTO (Reuters) - The Canadian dollar finished flat versus the U.S. dollar on Tuesday in a session in which it hit a one-week high ahead of data that could point to a recession in the United States.
Canadian bond prices closed lower after billionaire Warren Buffett offered to take over some liabilities of bond insurers and spoiled the appetite for government debt.
The Canadian dollar closed at C$1.0010 to the U.S. dollar, or 99.90 U.S. cents, up from C$1.0015 to the U.S. dollar, or 99.85 U.S. cents, at Monday’s close.
Early in the session the Canadian dollar rose to US$1.0062, valuing a U.S. dollar at 99.38 Canadian cents. That marked the currency’s highest level in a week, but it handed nearly all its gains back by the session’s close.
The Canadian dollar’s reversal from its session high was blamed on anxiety ahead of U.S. retail and international trade data due in the coming days, which could shed light on whether the economy of Canada’s key trading partner is headed for a recession.
“Markets are waiting for more information on the U.S. economy,” said Paul Ferley, assistant chief economist at Royal Bank of Canada. “They want to get a better read in terms of whether that economy is moving into a recession or not in the first half of this year.”
Recent Canadian data has painted a picture of a resilient economy, but the United States takes in about three-quarters of Canadian exports, so any slowdown there could hit the Canadian economy hard.
The Canadian dollar has been locked in a relatively tight range lately, but U.S. economic reports have the potential to offer a lasting trend for the currency, Ferley said.
Canada’s economic calendar is bare until merchandise trade data arrives on Thursday and a manufacturing shipments report due out on Friday.
Canadian bond prices turned lower across the curve as the announcement from Buffett, which helped soothe market concerns regarding the health of U.S. bond insurers, left investors less interested in secure assets such as government-issued bonds.
Buffett offered to take on $800 billion in municipal bond risk from the top three bond insurers, an announcement that helped ease worries about further credit crisis fallout.
“I think the focus right now in terms of the Canadian market is sort of what’s happening in the U.S. with a bit more optimism about the outlook for equity markets with indications of possibly some monies coming to the bond insurers,” Ferley said.
The two-year bond fell 9 Canadian cents to C$102.01 to yield 3.088 percent. The 10-year bond slid 38 Canadian cents to C$101.22 to yield 3.842 percent.
The yield spread between the two- and 10-year bond was 75.4 basis points, up from 73.6 at the previous close.
The 30-year bond dropped 80 Canadian cents to C$113.25 to yield 4.208 percent. In the United States, the 30-year Treasury yielded 4.462 percent.
The three-month when-issued T-bill yielded 3.25 percent, unchanged from the previous close.