TORONTO (Reuters) - The Canadian dollar closed slightly lower versus the U.S. dollar in a lackluster session given the absence of any domestic data and hesitation ahead of a rate decision by the Federal Reserve due later this week.
Domestic bond prices finished mostly flat across the curve after a rally last week and ahead of U.S. data this week that could come in below expectations.
The Canadian dollar closed at C$1.0158 to the U.S. dollar, or 98.44 U.S. cents, down from C$1.0170 to the U.S. dollar, or 98.33 U.S. cents, at Friday’s close.
The domestic currency stayed in a relatively narrow range all session, which is likely to be the case for the rest of the week, as there are no key economic releases that have the muscle to trigger a move.
“Certainly for the most part the lack of data in Canada is going to probably suggest at first blush that the currency is going to be rangebound this week,” said Jack Spitz, managing director of foreign exchange at National Bank Financial.
“We’re seeing a consolidative, congestive move in the Canadian dollar, which is still being torn between rising crude prices against the backdrop of a rising U.S. dollar today.”
Spitz also said the Fed’s rate announcement on Wednesday, and even more its communique, could be a catalyst for a move in the U.S. dollar and by default, the Canadian dollar.
The Fed is widely expected to hold its key rate steady at 2 percent, but the market will be watching more to see if the central bank shifts its bias to monetary tightening as it seeks to rein in inflation.
Comments from Bank of Canada Deputy Governor Sheryl Kennedy after the markets closed, who said the Canadian housing market was holding up well, did not have any noticeable impact on the Canadian dollar.
BOND PRICES MIXED
Canadian bond prices finished mostly flat on the short end of the curve but recorded slim gain on the long end as dealers positioned themselves for U.S. data due this week that could spark some demand for secure assets like government debt.
U.S. consumer confidence data for June will be released on Tuesday and, given the lack of Canadian data, could set the stage for a rally in bond prices.
“There’s enough potential negative data in the U.S. to support the bond market right now and that’s why prices aren’t going down,” said Sheldon Dong, fixed income analyst at TD Waterhouse Private Investment.
“And basically no one expects the (Fed and Bank of Canada) to tighten anytime soon. They are probably on hold until the end of the summer.”
The two-year bond dipped 5 Canadian cents to C$100.78 to yield 3.329 percent. The 10-year bond gained 25 Canadian cents to C$101.50 to yield 3.800 percent.
The yield spread between the two-year and 10-year bond was 47.1 basis points, down from 51.9 at the previous close.
The 30-year bond added 54 Canadian cents to C$114.54 for a yield of 4.134 percent. In the United States, the 30-year Treasury yielded 4.704 percent.
The three-month when-issued T-bill yielded 2.70 percent, unchanged from the previous close.
Editing by Frank McGurty
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