Wednesday June 11, 2008 - 20:48:57 GMT
Share This Story
Reuters - www.reuters.com
Forex Market News - Canadian dollar rises for second day on rates
* Canadian dollar extends rebound to second session
* Bank of Canada rate decision still driving gains
* Bond prices get boost from weak economic data
By Frank Pingue
TORONTO, June 11 (Reuters) - The Canadian dollar rose for a
second straight session versus the U.S. dollar on Wednesday as
a surprise decision by the Bank of Canada to leave interest
rates steady continued to offer support.
A jump in oil prices of more than $5 a barrel also helped
fuel the gain in the commodity-linked Canadian dollar. Canada
is a major oil exporter. The currency rose 0.2 percent on
The Canadian dollar closed at C$1.0200 to the U.S. dollar,
or 98.04 U.S. cents, up from C$1.0224 to the U.S. dollar, or
97.81 U.S. cents, at Tuesday's close.
Last week the Canadian dollar fell 2.6 percent as traders
considered a Bank of Canada rate cut to be a sure bet. But when
the bank went against expectations on Tuesday and said it would
leave its key rate steady at 3.00 percent, the Canadian dollar
staged a rebound that continued on Wednesday.
"I think the Canadian dollar was pressured lower earlier on
by expectations that the Bank of Canada might opt for an easier
policy stance compared to the United States," said Paul Ferley,
assistant chief economist at Royal Bank of Canada.
"But with the announcement yesterday that line of thinking
proved to be incorrect, and because of that we are continuing
to see the Canadian currency correct."
With the Bank of Canada's key overnight rate steady at 3.00
percent, the Canada-U.S. interest rate gap continues to favor
the Canadian currency since the U.S. Federal Reserve's federal
funds rate is 2.00 percent.
The second day of gains for the Canadian dollar came after
a slide to C$1.0246, or 97.60 U.S. cents, during the overnight
session. But a sliding greenback and higher oil prices opened
the door for the Canadian dollar to bounce back.
U.S. crude oil prices shot higher and are now within reach
of last week's record near $140.
BOND PRICES RALLY
Canadian bond prices were given an early boost after two
pieces of domestic data came in worse than analysts expected,
while the Federal Reserve's Beige Book also helped.
In Canada, secure assets such as government debt were
snapped up after data showed the new home prices were steady in
April from March, versus expectations for a 0.4 percent climb.
To a lesser extent, another report that showed Canadian
industries ran at 79.8 percent of their capacity in the first
quarter, less then the 80.8 percent expected by the market,
also helped bond prices.
"Canadian bond market prices seem to be reflecting the
pattern in the U.S. (Treasury market)," Ferley said.
"The Canadian housing data did offer some support to the
upward trend but I think the dominant factors is you've got the
move in the U.S. spilling over into Canada."
In its Beige Book, the Fed said U.S. businesses have faced
rising costs in recent weeks but retailers have had only "mixed
results" trying to raise selling prices.
With no key economic data due out in Canada the rest of the
week, the U.S. market could again dictate direction as data on
jobless claims and retail sales are due to be released.
The two-year bond rose 20 Canadian cents to C$100.87 to
yield 3.289 percent. The 10-year bond climbed 30 Canadian cents
to C$101.48 to yield 3.803 percent.
The yield spread between the two-year and 10-year bond was
51.4 basis points, down from 45.2 at the previous close.
The 30-year bond added 10 Canadian cents to C$113.95 for a
yield of 4.166 percent. In the United States, the 30-year
Treasury yielded 4.697 percent.
The three-month when-issued T-bill yielded 2.80 percent,
unchanged from the previous close.
(Editing by Peter Galloway)
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."