TORONTO, April 29 (Reuters) - The Canadian dollar was flat against the U.S. dollar on Tuesday as investors pondered whether the U.S. interest rate-cutting cycle was coming to an end.
Domestic bond prices, with no major Canadian data to influence direction, rose as investors took advantage of lower prices after a string of losses in recent weeks.
At 8:34 a.m. (1234 GMT), the Canadian dollar was at C$1.0127 to the U.S. dollar, or 98.75 U.S. cents, unchanged from Monday’s close.
Indeed, the greenback was stronger across the board, with the Canadian dollar being the exception.
“It seems to be that there is a general perception growing that the damage that we’ve seen to the U.S. economy is spreading somewhat to the rest of the world,” said Adam Cole, head currency strategist at RBC Capital Markets.
“And because Canada is seen as being strongly keyed into the U.S. economic cycle, it is not being damaged by worsening sentiment on the world outside the U.S. the way the other currencies are,” he said.
Weak economic data out of Europe signaled that monetary policy there may have to tighten, while in the U.S., it seems as though the U.S. Federal Reserve’s easing campaign may be coming to a halt.
The market is expecting the Fed to lower its key lending rate by 25 basis points on Wednesday, to 2.0 percent, and then to signal that it will be on hold. See: [ID:nFEDAHEAD]
“To be honest, I think in the current environment, where the Fed seems to be winning to a degree, I can’t really see any strong incentive to do anything other than what the market is expecting.
Canadian data due this week includes the February gross domestic product report on Wednesday, along with industrial product price and raw materials price indexes for March.
Canadian bond prices rose as investors contemplated whether the steep selloff from last week may have been too quick.
“Yesterday and today, bonds have been coming up for air, but the trend is clearly yields going up and prices going down,” said Carlos Leitao, chief economist at Laurentian Bank of Canada.
“This is a bit of a strange week for the bond market,” said Leitao. That’s because if the Fed signals a pause in its easing cycle, it would be negative for bonds, but then U.S. employment data at the end of the week could signal that the U.S. economy is not out of the woods yet, and prompt a bond rally.
The overnight Canadian Libor rate LIBOR01 was 3.0217, down from 3.0500 on Monday.
The two-year bond rose 4 Canadian cents to C$101.81 to yield 2.849 percent. The 10-year bond climbed 10 Canadian cents to C$102.20 to yield 3.711 percent.
The yield spread between the two- and 10-year bonds was 86.4 basis points, up from 85.1 points at the previous close.
The 30-year bond added 8 Canadian cents to C$113.48 to yield 4.193 percent. In the United States, the 30-year Treasury yielded 4.548 percent.
The three-month when-issued T-bill yielded 2.63 percent, up from 2.61 percent at the previous close. (Editing by Bernadette Baum) ((firstname.lastname@example.org; +1 416 941 8083; Reuters Messaging: email@example.com))
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