By Frank Pingue
TORONTO, April 17 (Reuters) - The Canadian dollar closed
lower versus the U.S. dollar on Thursday, handing back more
than half Wednesday's gains as weak inflation data solidified
expectations of a 50-basis-point interest rate cut from the
Bank of Canada next week.
Domestic bond prices closed mostly lower as a slide in the
bigger U.S. Treasury market influenced the direction for the
Canadian market, whose fall was cushioned by the weak data.
The Canadian dollar closed at C$1.0122 to the U.S. dollar,
or 98.79 U.S. cents, down from C$1.0014 to the U.S. dollar, or
99.86 U.S. cents, at Wednesday's close.
Thursday's data showed core inflation slowed more than
expected in March to 1.4 percent, its lowest since July 2005
and below the central bank's 2 percent target.
The Canadian currency climbed above the greenback
immediately after the figures were released, but slipped back
below it as North American investors arrived at their offices.
It was the Canadian currency's first stint above parity
versus the U.S. dollar in almost a month. But the currency
remains locked in the range it has occupied for months.
"The data essentially solidified the outlook for another 50
basis point easing at the next meeting and probably got rid of
anyone who was doubting it to begin with," said David Powell,
currency analyst at IDEAglobal in New York.
A Reuters poll showed a large majority of Canada's primary
securities dealers expect the Bank of Canada to cut its key
interest rate by 50 basis points to 3 percent when it sets
rates on April 22.
Powell said a stronger U.S. dollar magnified the fall in
the Canadian dollar, whose 1.07 percent drop on Thursday was
its biggest percent drop in a session since March 20.
Friday's Canadian data are wholesale trade figures for
February and March leading indicators, but neither report is
expected to alter rate expectations.
BONDS TURN LOWER
Canadian bond prices mostly followed the U.S. Treasury
market lower given signs that some investors expect the U.S.
Federal Reserve may not have to cut interest rates much
U.S. interest rate futures point to a Fed rate cut of 25
basis points at the April 29-30 meeting, while odds of a deeper
50-basis-point rate have been slashed to 18 percent.
"We are continuing in a period here where maybe the (U.S.)
recession is not unfolding as deeply as before," said Michael
Gregory, senior economist at BMO Capital Markets. "So there
seemed to be a little bit of a correction in the U.S. bond
market and I think that just filtered across the border."
The two-year bond dropped 12 Canadian cents to C$101.87 to
yield 2.831 percent. The 10-year bond slipped 7 Canadian cents
to C$102.45 to yield 3.680 percent.
The yield spread between the two- and 10-year bonds was
84.9 basis points, down from 88.5 at the previous close.
The 30-year bond gained 10 Canadian cents to C$114.25 to
yield 4.151 percent. In the United States, the 30-year treasury
yielded 4.519 percent.
The three-month when-issued T-bill yielded 2.55 percent,
down from 2.56 percent at the previous close.
(Editing by Janet Guttsman)