June 13, 2008 / 2:25 PM / in 9 years

Canadian dollar falls on U.S. rate speculation

* Canadian dollar slips 0.3 percent as US$ strengthens

* Bond prices rise as investors square books

TORONTO, June 13 (Reuters) - The Canadian dollar slipped 0.3 percent against the U.S. dollar on Friday morning as the greenback strengthened on speculation of higher interest rates, while Canadian bond prices rose as investors squared positions ahead of the weekend.

At 9:52 a.m. (1352 GMT), the Canadian dollar was at C$1.0260 to the U.S. dollar, or 97.47 U.S. cents, down from C$1.0232 to the U.S. dollar, or 97.73 U.S. cents, at Thursday’s close.

So far for the week, the Canadian currency is down 0.6 percent against the stronger greenback.

“Overnight direction in the Canadian dollar was driven by U.S. dollar strength,” said Matthew Strauss, senior currency strategist at RBC Capital Markets.

The U.S. dollar is on course to record its best week against a basket of currencies in over three years as inflation data came in slightly above expectations, raising expectations that the U.S. Federal Reserve might raise interest rates some time in the near future.

Earlier in the week, a report on U.S. retail sales in May came in stronger than expected. That prompted some to say the worst of the U.S. downturn is over. But others cautioned that it’s too early to tell and that the retail sales rise may be a blip caused by the rebate checks sent to all U.S. taxpayers in May as part of the U.S. government’s $50 billion stimulus package.

RBC’s Strauss said he is not in camp that thinks the Fed is about to raise rates.

“We think the Fed will continue talking tough on inflation and keep their hawkish stance, which will be reflected in the (strengthening of the) U.S dollar, and that in itself is, by implication, a tightening of monetary policy,” he said.

Data released Friday showed Canadian labor productivity declined 0.3 percent in the first quarter, due to a drop in manufacturing output, fewer working hours and bad weather.

Other data showed higher prices and production in the petroleum products industry helped drive up Canadian manufacturing sales by a stronger-than-expected 2 percent in April from March.

BONDS PRICES RISE

Canadian bond prices rose as investors squared positions ahead of the weekend after a week of heavy selling.

“All I see is housekeeping. The economic data really wasn’t a catalyst to drive trade one way or the other,” said Sheldon Dong, fixed income strategist at TD Waterhouse Private Investment.

The overnight Canadian LIBOR rate LIBOR01 was at 2.9567 percent, down from 2.9550 percent on Thursday.

Thursday’s CORRA rate CORRA= was 3.0065 percent, up from 3.0036 on Wednesday. The Bank of Canada publishes the previous session’s rate around 9 a.m. daily.

The two-year bond climbed 9 Canadian cents to C$100.74 to yield 3.355 percent. The 10-year bond added 4 Canadian cents to C$100.96 to yield 3.872 percent.

The yield spread between the two-year and 10-year bond was 51.7 basis points, down from 47.9 at the previous close.

The 30-year bond rose 5 Canadian cents to C$113.33 for a yield of 4.200 percent. In the United States, the 30-year Treasury yielded 4.761 percent.

The three-month when-issued T-bill yielded 2.77 percent, down from 2.80 percent at the previous close.

For Reuters bond and money market pricing information double click on one of the following: CAD= Canadian dollar live quote, high/low FXNEWS Headlines from global forex markets CDBN Canadian bond prices CDMM CDMN <0#CAMMKT=> Canadian money market prices CABONEA Canada-U.S. spreads (live) YLDS1 World yield index CA30YT=RR 30 year benchmark <0#CGB:> CGBc1 <CA/FACTOR1> MEIRP - Montreal Exchange

bond futures pricing information CAMCI= Bank of Canada monetary conditions index (Reuters calculation) CACALL= Canada’s call loan or overnight lending rate =CAD Canadian dollar G10 trade-weighted index.

For the fixed-income market speed guides, double click on one of the following: <CA/MMKT1> <CA/MMKT2> <CA/DEBT> BONDS TREASURY For related news, double click on one of the following: [CAN] Canadian news [NAT] North American Treasuries news [M] Money news [D] Debt news [MF] Markets news [GVD] Government debt news [MMT] Money market news [INT] Interest rate news [CEN] Central bank news [CA/] Canadian bond market stories

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