April 21, 2010 / 12:31 PM / in 8 years

Canada dollar ends lower, but above parity for second day

TORONTO (Reuters) - Canada’s dollar closed weaker on Wednesday but held above parity against the greenback for a second straight session, supported by the lingering impact of the Bank of Canada’s signal it could raise rates soon.

The Canadian currency finished at C$0.9992 to the U.S. dollar, or $1.0008, a sliver lower than Tuesday’s close at C$0.9988 to the U.S. dollar, or $1.0012.

“By and large, the market continues to see Canada as a very strong viable alternative from a global perspective,” said Jack Spitz, managing director of foreign exchange at National Bank Financial.

The Canadian currency earlier in the day rose as high as C$0.9931 to the U.S. dollar, or $1.0069 U.S. cents, its strongest level since June 2008.

The Canadian dollar jumped more than 1 U.S. cent on Tuesday after the central bank became the first in the Group of Seven countries to hint it may raise interest rates, possibly as early as June 1.

Currencies usually strengthen as interest rates rise because higher rates tend to attract capital flows.

The currency managed to hold above parity at the close of the North American session on Wednesday even as stock markets notched a lackluster performance and oil prices, a key Canadian export, were slightly weaker.

Some market watchers said the technical outlook for the currency was still bullish. Technical analysis tries to identify price patterns and trends in financial instruments.

The Canadian dollar traded above its 14-day, 50-day, 100-day and 200-day simple moving averages, indicating the currency had no key resistance levels on that measure.

And the 20-day lower Bollinger band, a technical analysis tool that plots one standard deviation above and below the moving average of closing prices, was at C$0.9905, suggesting the Canadian dollar could appreciate further.

But investor focus on Thursday will also be on the Bank of Canada’s Monetary Policy Report.

BOND PRICES FALL, LONG END UP

Canadian bond prices extended their fall after the central bank’s rate announcement in the previous session and stood out against other markets, said Doug Porter, deputy chief economist, at BMO Capital Markets.

“Bonds continue to selloff in the wake of yesterday’s news. If anything, the market priced in a little bit more Bank of Canada tightening. It’s the sober second thought,” said Porter.

The two-year government bond was down 4 Canadian cents at C$99.00 to yield 2.050 percent, while the 10-year bond fell 9 Canadian cents to trade at C$100.22 and yield 3.721 percent.

The 30-year bond rose 12 Canadian cents to C$115.20 to yield 4.069, following flattening moves in U.S. Treasuries.

Canadian government bonds underperformed U.S. issues, with the two-year yield 105 basis points above its U.S. counterpart, compared with around 99 basis points the previous session.

With additional reporting by Ka Yan Ng and Claire Sibonney in Toronto and Nick Olivari in New York; Editing by Jeffrey Hodgson

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