Monday February 11, 2008 - 22:13:16 GMT
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Reuters - www.reuters.com
Forex Market News - Dollar falls as rate cut comments linger
By Frank Pingue
TORONTO (Reuters) - The Canadian dollar ended lower against
the U.S. dollar on Monday in a lackluster session in which
investors reflected on weekend Bank of Canada comments that
suggested more interest rate cuts are on the way.
Domestic bond prices held on to finish higher across the
curve as concerns about a U.S. recession trumped a turnaround
in North American equity markets.
The Canadian dollar closed at C$1.0015 to the U.S. dollar,
or 99.85 U.S. cents, down from US$1.0002, which valued a U.S.
dollar at 99.98 Canadian cents, at Friday's close.
Comments from Bank of Canada Governor Mark Carney over the
weekend, which suggested more rate cuts were likely needed,
were enough to weigh on the currency given the lack of any key
domestic data to sway financial markets.
Carney said the timing and degree of any rate cuts will be
determined at future fixed announcement dates, which leaves the
door open for a bolder 50 basis point cut when the central bank
next sets interest rates on March 4.
"I personally took the remarks to be mildly dovish," said
Doug Porter, deputy chief economist at BMO Capital Markets.
"And if you read between the lines you could see he was leaving
the door slightly ajar to a more aggressive move."
The Canadian dollar, which spent the session wedged in a
range of C$1.0035, or 99.65 U.S. cents, and US$1.0015, valuing
a U.S. dollar at 99.85 Canadian cents, barely budged after news
that the minority Conservative government will present its next
federal budget on February 26.
If the budget is not passed, the government will fall and
there will be a federal election. However, that is not expected
to rattle the currency as polls suggest another minority
government would likely be the result.
The Canadian dollar has been bounced around, given the
benefit of a 1 percent Canada-U.S. interest rate gap and the
drawback of commodity prices that have eased from record highs
reached earlier this year.
The Canadian dollar tumbled 4.5 percent in the first three
weeks of 2008, but has since clawed its way back and is roughly
where it started, around parity with the greenback.
"The currency is still dealing with that duel impact of
potentially weaker commodity prices and widening Canada-U.S.
spreads," said Porter. "So far, those two forces have fought to
a draw in 2008."
BONDS FINISH HIGHER
Canadian bond prices managed to grind out a minor gain
alongside a rally in the bigger U.S. Treasury market as dealers
shrugged off a rebound in equity markets and focused more on
nagging U.S. recession concerns.
"The market is still focused squarely on U.S. recession
risks and what that might mean for a variety of debt markets,"
The latest piece of Canadian data showed the price of new
homes rose by 0.1 percent in December from November, which was
shy of estimates calling for a gain of 0.3 percent.
The two-year bond rose 3 Canadian cents to C$102.07 to
yield 3.055 percent. The 10-year bond increased 24 Canadian
cents to C$101.62 to yield 3.791 percent.
The yield spread between the two- and 10-year bond was 73.6
basis points, down from 74.6 at the previous close.
The 30-year bond rose 44 Canadian cents to C$114.02 to
yield 4.166 percent. In the United States, the 30-year treasury
yielded 4.403 percent.
The three-month when-issued T-bill yielded 3.25 percent,
down from 3.28 percent at the previous close.
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