TORONTO (Reuters) - The Canadian dollar neared a four-week high versus the U.S. dollar on Wednesday due to a more stable equity market backdrop and negative sentiment towards the greenback ahead of the U.S. Federal Open Market Committee interest rate decision.
Domestic bond prices, with no Canadian economic data to consider, followed the bigger U.S. Treasury market lower after U.S. data showed the private sector added about three times more jobs than expected.
At 9:10 a.m., the Canadian dollar was at US$1.0065, valuing a U.S. dollar at 99.35 Canadian cents, up from US$1.0005, or 99.95 Canadian cents, at Tuesday’s North American session close.
Oil prices were sitting near a two-week high and offered some support to the commodity-linked domestic currency, but calmer equity markets overnight after a string of wild moves, played a bigger role.
The Canadian dollar’s performance in recent session has been closely linked to equity markets, which currency traders have been using as a guide for the global economic outlook.
“It’s a combination of people generally feeling more negative on the U.S. dollar and the fact that we are again seeing some stability in equity markets,” said Adam Cole, global head of FX strategy at RBC Capital Markets in London.
“The violent swings of last week seem to be left behind for the time being at least which is a positive factor for the Canadian dollar.”
Further moves in the Canadian dollar on Wednesday will likely be capped until after the U.S. Federal Reserve interest rate decision. The Fed is expected to cut its key lending rate by half-a-percentage point to 3 percent in a bid to bolster the U.S. economy.
Investors will then turn their attention to Bank of Canada Senior Deputy Governor Paul Jenkins, who is schedule to speak on the economic impact of the strong Canadian dollar at 3:30 p.m. in the House of Commons.
The Bank of Canada cut its key overnight rate by 25 basis points to 4.00 percent last week and is due to set interest rate again on March 22.
A Reuters poll taken after the Bank of Canada’s Monetary Policy Report Update last week showed all of Canada’s 12 primary dealers expect the central bank to cut its overnight rate by at least 25 basis points in March.
Canadian bond prices were lower across the curve after the ADP Employer Services data humbled estimates and left investors a bit more comfortable moving out of safe-haven bonds in favor of more risky investments like equities.
According to ADP Employer Services, the U.S. private sector added 130,000 jobs in January, which flew past expectations for as gain of 45,000 private-sector jobs.
But another piece of U.S. data showed growth in the fourth quarter missed estimates and cushioned the fall in bond prices and could eventually send them higher.
“The ADP report signals an improvement in U.S. non-farm payrolls in January and that seemed to rattle the bond market a little bit,” said Sal Guatieri, senior economist at BMO Capital Markets. “Although the soft Q4 GDP report should keep the Fed on track to cut rates 50 points this afternoon so that might provide some offsetting support to the bond market.”
The overnight Canadian Libor rate was at 4.1100 percent, up from 4.1000 percent on Tuesday.
Tuesday’s CORRA rate was 4.0042 percent, down from 4.0089 percent on Monday. The Bank of Canada publishes the previous day’s rate at around 9:00 a.m. daily.
The two-year bond fell 4 Canadian cents to C$101.64 to yield 3.315 percent. The 10-year bond slid 11 Canadian cents to C$100.59 to yield 3.924 percent.
The yield spread between the two-year and 10-year bond was 60.8 basis points, down from 61.5 points at the previous close.
The 30-year bond slipped 19 Canadian cents to C$113.56 to yield 4.192 percent. In the United States, the 30-year Treasury yielded 4.368 percent.
The three-month when-issued T-bill yielded 3.41 percent, up from 3.40 percent at the previous close.
Editing by Renato Andrade