Friday January 25, 2008 - 22:29:27 GMT
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Reuters - www.reuters.com
Forex Market News - Canada dollar edges lower, bonds rise as Fed looms
Fri Jan 25, 2008 5:09pm EST
By Cameron French
TORONTO (Reuters) - The Canadian dollar eased slightly
against the greenback on Friday, shaking off tamer than
expected inflation data as oil and gold prices rose, and the
market looked ahead to an expected U.S. interest rate cut next
Domestic bond prices rose on the inflation data, and were
also boosted by safe-haven buying ahead of the weekend.
The currency finished at C$1.0070 to the U.S. dollar, or
99.30 U.S. cents, down slightly from C$1.0061 to the U.S.
dollar, or 99.39 U.S. cents, at Thursday's close.
Canadian consumer prices rose 2.4 percent in December,
while core prices -- which exclude volatile items and are seen
as a guide to future inflation -- rose 1.7 percent, less than
The currency eased slightly on the report, but largely held
its gains of more than 1.5 U.S. cents from the previous
"Looking at the range, it was very much a flow-driven day,
where the market was taking a bit of a breather after the
hectic first four days of the week," said Matthew Strauss,
senior currency strategist at RBC Capital Markets.
The currency gained 2 percent on the week, helped by an
unexpected 75 basis point interest rate cut by the U.S. Federal
Reserve on Tuesday and a late week rebound in equity and
Both oil and gold pushed higher on Friday, with gold
futures hitting an all-time high of $924.30, and oil climbing
back above $90 a barrel, both giving an upward push to the
currency. Canada is an exporter of both commodities.
Strauss said the Canadian dollar's recent move and the
commodity outlook suggests the currency is primed to retest
parity with the U.S. dollar.
But he said next week's direction will depend heavily on
the performance of stock markets, as well as the U.S. Federal
Reserve's interest rate decision, to be announced on Wednesday.
Markets have priced in a half-percentage-point cut, which
would support stock markets, but likely pull the greenback
lower. If the Fed cuts less than that, the U.S. currency will
likely rise versus the Canadian dollar.
"As well, the equity market would react very negatively to
that, and that could hit the Canadian dollar we well," Strauss
Bond prices strengthened on the weaker inflation data, and
continued to rise through the session as falling stock prices
gave a boost to fixed-income investments.
The Toronto Stock Exchange's main composite index, surged
early by as much as 250 points, or nearly 2 percent, but by the
close has retreated to post a small loss. The U.S. Dow Jones
Industrial Average, meanwhile, dropped 1.4 percent as investors
locked in investments ahead of the weekend.
In addition to the Fed decision, Canadian monthly economic
growth and producer prices data will be released next week, as
will U.S. nonfarm payrolls.
The two-year bond rose 14 Canadian cents to C$101.81 to
yield 3.224 percent. The 10-year bond climbed 70 Canadian cents
to C$100.12 to yield 3.855 percent.
The yield spread between the two-year and 10-year bond was
63.1 basis points, up from 64.0 points at the previous close.
The 30-year bond gained C$1.38 Canadian cents to C$114.40
to yield 4.147 percent. In the United States, the 30-year
treasury yielded 4.273 percent.
The three-month when-issued T-bill yielded 3.40 percent,
unchanged from the previous close.
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