Monday April 21, 2008 - 21:02:25 GMT
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Reuters - www.reuters.com
Forex Market News - Canadian dollar falls on rate-cut expectations
By Frank Pingue
TORONTO (Reuters) - The Canadian dollar closed lower versus
the U.S. dollar on Monday as the likelihood of a Bank of Canada
rate cut and a dovish bank statement more than offset the
benefit of record high oil prices.
Bond prices finished higher across the curve as
disappointing results from Bank of America Corp triggered a
rally, and the rate-cut expectations convinced dealers to hang
on to more secure assets such as government debt.
The Canadian dollar closed at C$1.0060 to the U.S. dollar,
or 99.40 U.S. cents, down from C$1.0049 to the U.S. dollar, or
99.51 U.S. cents, at Friday's close.
A jump in crude oil prices to a record high above $117 a
barrel helped the Canadian currency shoot above parity versus
the greenback early in the day. It hit a session high of
US$1.0002, valuing a U.S. dollar at 99.98 Canadian cents.
But it pulled back on expectations that the Bank of Canada
will cut its key overnight rate by 50 basis points to 3.00
percent on Tuesday and leave the door open to another cut when
it sets interest rates in June.
"You've got the backdrop of high oil prices and commodities
are doing well, which should be Canadian-dollar positive," said
David Watt, senior currency strategist at RBC Capital Markets.
"But you also have the Bank of Canada, which has expressed
concern about the U.S. slowdown impact on the Canadian economy
and tight finance conditions, and they are going to be cutting
interest rates and probably leaving the door open to more."
Since slashing rates by a half-percentage point in March,
the Bank of Canada has remained downbeat, but has also shied
away from offering the market any hint on how big its next
interest rate cut will be.
Nearly all of Canada's primary security dealers expect the
central bank to cut its key overnight rate by 50 basis points,
according to a Reuters poll taken last week after data showed
Canada's core inflation slowed more than expected in March.
After hitting its session high, the Canadian dollar fell
just over half a cent before settling into a tight range for
the second half of the North American session.
Canadian bond prices were in demand after disappointing
quarterly results from Bank of America, and they hung onto
their gains as the market eventually shifted its focus to the
widely expected Bank of Canada rate cut on Tuesday.
"The market is built up for another half-point cut from the
Bank of Canada tomorrow and the easing door swinging open,"
said Sal Guatieri, senior economist at BMO Capital Markets.
"The bank might tone down its commitment to ease further,
perhaps suggesting that downside risks, while they remain, have
Data released early in the session showed foreigners bought
C$3.8 billion worth of Canadian securities in February, the
largest monthly amount since April 2007.
The two-year bond rose 5 Canadian cents to C$101.86 to
yield 2.834 percent. The 10-year bond increased 18 Canadian
cents to C$102.58 to yield 3.663 percent.
The yield spread between the two- and 10-year bonds was
82.9 basis points, unchanged from the previous close.
The 30-year bond ended up 38 Canadian cents at C$114.83 to
yield 4.120 percent. In the United States, the 30-year treasury
yielded 4.482 percent.
The three-month when-issued T-bill yielded 2.55 percent,
unchanged from the previous close.
(Editing by Peter Galloway)
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