TORONTO (Reuters) - The Canadian dollar rebounded slightly versus the U.S. dollar on Monday following last week’s tumble, but the gains were due mostly to a weak greenback ahead of a raft of U.S. bank results.
Domestic bond prices, which rallied last week on a string of weak Canadian economic data reports, turned slightly lower ahead of the Bank of Canada’s Business Outlook Survey.
At 8:40 a.m., the Canadian unit was at 98.12 U.S. cents, valuing a U.S. dollar at C$1.0192, up from 98.07 U.S. cents, or C$1.0197, at Friday’s close.
The slight rise in the Canadian dollar follows a 1.8 percent slide last week amid weak domestic data, notably Friday’s disappointing jobs report which all but locked in a Bank of Canada rate cut later this month.
But the modest rebound in the Canadian dollar came against a greenback which remained down against overseas currencies, or crosses, as investors could not ignore the potential fallout in Canada from any economic slowdown in the United States.
“It’s up very slightly against the U.S. dollar but it’s down against just about every other currency on the view that if the U.S. economy is vulnerable then Canada is vulnerable to spillover effects from that,” said Adam Cole, currency strategist at RBC Capital Markets in London.
“So the Canadian dollar is gaining a bit (versus the U.S. dollar) by default but gaining less than other currencies.”
The economic calendar in Canada will slow down this week with the central bank’s Business Outlook Survey at 10:30 a.m. and Friday’s manufacturing sales report for November being the two key events.
Investors may look south of the border for direction, given the raft of data and expectations for soft earnings that will strengthen the case for a U.S. Federal Reserve rate cut.
Canadian bond prices gave back some of the gains recorded last week as dealers pocketed some profits ahead of the bank’s Business Outlook Survey.
The report is not expected to alter expectations for the Bank of Canada to cut its key interest rate on January 22, but any signs that business conditions have deteriorated a bit will give the bank more comfort in lowering rates and may boost bond prices.
The overnight Canadian Libor rate was at 4.2500 percent, up from 4.2066 percent on Friday.
The two-year bond was down 2 Canadian cents at C$101.78 to yield 3.262 percent. The 10-year bond fell 10 Canadian cents to C$101.50 to yield 3.808 percent.
The yield spread between the two-year and 10-year bond was 54.7 basis points, up from 55.8 at the previous close.
The 30-year bond was down 32 Canadian cents at C$116.00 to yield 4.062 percent. In the United States, the 30-year treasury yielded 4.393 percent.
The three-month when-issued T-bill yielded 3.64 percent, down from 3.67 percent at the previous close.
Editing by Bernadette Baum