Canada dollar slips lower on U.S. data, bonds up
By Frank Pingue
TORONTO, Aug 27 (Reuters) - The Canadian dollar finished
lower against the U.S. currency on Monday as nagging concerns
about the global economy ate away at early merger-related gains
after news of a takeover of Stelco Inc. (STE.TO: Quote, Profile, Research).
Domestic bond prices followed U.S. treasuries higher ahead
of a speech late on Monday from Bank of Canada Deputy Governor
Pierre Duguay that could offer clues about monetary policy.
The Canadian dollar closed at C$1.0543 to the U.S. dollar,
or 94.85 U.S. cents, down from C$1.0520 to the U.S. dollar, or
95.06 U.S. cents, at Friday's session close.
Early in the session the currency rose to about C$1.0470,
or 95.51 U.S. cents, its highest level in almost three weeks,
as news that U.S. Steel Corp. (X.N: Quote, Profile, Research) said it would buy Hamilton,
Ontario-based Stelco for $1.1 billion filtered through the
The merger-related gains started to erode by mid-morning
when data showed U.S. existing home sales fell in July, which
does not bode well for the global economy and ultimately the
commodity-linked Canadian dollar.
"The currency started the day on quite a strong footing
partly because of news from the Stelco deal and perhaps a bit
of a continuation of last week's rally," said Doug Porter,
deputy chief economist at BMO Capital Markets.
"However, some renewed concerns about the U.S. housing
sector, and therefore the global economy more generally, took a
bit of steam out of the currency."
The U.S. data was enough to shake the Canadian dollar after
a 0.9 percent gain last week as financial markets looked ready
to regain their footing after turmoil with credit conditions.
News that U.S. Steel would buy Stelco, which marks the last
big Canadian-owned steelmaker to fall into foreign hands, came
late on Sunday and supported the currency through the overnight
session and into the early part of the North American session.
Canadian bond prices, with no domestic data to consider,
followed U.S. treasuries higher after the home sales data
showed the U.S. housing downturn continues to intensify.
A speech late on Monday by the central bank's Duguay also
supported bond prices as the deputy governor may offer insight
on monetary policy ahead of the bank's decision on Sept. 5.
The Bank of Canada is widely expected to leave its key
overnight steady at 4.50 percent next week given the recent
turbulence in financial markets.
Analysts had been calling for a 25-basis-point hike by the
central bank but revised their predictions given the concerns
related to the credit crunch.
"I think the bank is going to more or less signal to us the
obvious, that the risks to the economy have increased to the
downside in the last month or so and that the bank is more
likely on hold than to be hiking rates at this stage," said
The two-year bond rose Canadian cents to C$99.22 to yield
4.212 percent, while the 10-year bond rose 39 Canadian cents to
C$97.33 to yield 4.338 percent.
The yield spread between the two-year and 10-year bond
moved to 12.6 basis points from 12.1 at the previous close.
The 30-year bond rose 65 Canadian cents, to C$110.40 to
yield 4.371 percent. In the United States, the 30-year treasury
yielded 4.856 percent.
The three-month when-issued T-bill yielded 3.97 percent,
unchanged from the previous close.