Saturday February 16, 2008 - 01:18:37 GMT
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Reuters - www.reuters.com
Forex Market News - Canadian dollar closes lower after midday meltdown
By Frank Pingue
TORONTO (Reuters) - The Canadian dollar fell versus the
U.S. dollar on Friday as low liquidity ahead of a holiday
weekend and weak domestic data pulled the rug from under the
currency and knocked it lower for the second straight week.
Domestic bond prices finished higher across the curve as
the weak report on Canadian manufacturers supported market
expectations that the Bank of Canada would cut interest rates
for the third consecutive time when it sets rates in March.
The Canadian dollar closed at C$1.0075 to the U.S. dollar,
or 99.26 U.S. cents, down from C$1.0002 to the U.S. dollar, or
99.98 U.S. cents, at Thursday's close.
The bulk of the currency's decline came in one swift move
just after midday as the U.S. dollar broke through C$1.0024, or
99.76 U.S. cents, and then shot to C$1.0115, or 98.86 U.S.
The early-session weakness for the Canadian dollar came
after domestic data showed factory shipments of vehicles
plunged in December to their lowest level in over a decade.
That report followed economic data on Thursday that showed
Canada's trade surplus shrank more than expected in December.
Each supported market expectations for more Bank of Canada rate
"Mostly, what we've seen is a real one-two punch of very
soft domestic data in the last two days between yesterday's
trade number and today's manufacturing number," said Doug
Porter, deputy chief economist at BMO Capital Markets.
"The main point here is there are just some questions as to
how well the Canadian economy can hold up in the face of a
marked U.S. slowdown."
With Canadian financial markets closed on Monday for
Ontario's Family Day, and U.S. markets closed for President's
Day, moves in the Canadian dollar were likely exaggerated given
low liquidity as many investors took off early for the long
Investors will return next week with a slew of key events,
including a speech by Bank of Canada Governor Mark Carney to
the British Columbia Chamber of Commerce on Monday, as well as
key January consumer price index data on Tuesday.
Bond prices were all higher as the weak string of domestic
data convinced many investors to take on more secure assets
like government debt.
The Bank of Canada has cut its key lending rate by 25 basis
points at each of its last two meetings, putting the overnight
rate at 4.00 percent, and is widely expected to cut again on
Given the weak Canadian data and widespread expectations
for more rates cuts, some experts felt the bond market could
have rallied further.
"It seems like the Canadian (bond) market's not really
paying that much attention to the domestic data," said Porter.
"I guess, given the big rally we've seen in (U.S.) treasuries
and the weak Canadian data, I would've expected a larger rally
in Canada today."
The two-year bond rose 9 Canadian cents to C$102.16 to
yield 2.989 percent. The 10-year bond climbed 57 Canadian cents
to C$101.45 to yield 3.813 percent.
The yield spread between the two- and 10-year bond was 82.4
basis points, down from 85.4 basis points at the previous
The 30-year bond was up C$1.28 at C$113.50 to yield 4.194
percent. In the United States, the 30-year treasury yielded
The three-month when-issued T-bill yielded 3.25 percent,
down from 3.26 percent at the previous close.
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