TORONTO, Aug 29 (Reuters) - The Canadian dollar finished
higher against the greenback on Wednesday, but its gains were
limited ahead of key domestic data and a cloud of caution that
continues to hover over the market.
Domestic bond prices dropped amid rallying North American
equity markets as dealers unwound recent flight-to-safety bids
that had been triggered by nagging credit concerns.
The Canadian dollar closed at C$1.0605 to the U.S. dollar,
or 94.30 U.S. cents, up from C$1.0651 to the U.S. dollar, or
93.89 U.S. cents, at Tuesday's close.
With no domestic data to consider during the session, the
Canadian dollar was unable to take advantage of rallying equity
prices and bounced around in a range of C$1.0584 to C$1.0624.
"There is a little less of a flight to safety bid to the
market and that tends to benefit the second-tier currencies
like the loonie," said Sal Guatieri, senior economist at BMO
"But the sense that the Bank of Canada is on hold for quite
some time and won't be raising interest rates is probably still
lingering and weighing on the currency."
Part of the Canadian currency's failure to take advantage
of favorable equity market conditions was pegged to hesitation
ahead of several piece of domestic data still due this week.
Current account surplus, producer prices and raw materials
reports are due on Thursday, but the week's key report will
arrive on Friday when second-quarter gross domestic product
figures are released.
The GDP report, which marks the last piece of data the Bank
of Canada will consider ahead of its Sept. 5 rate announcement,
is expected to show annualized growth of 2.8 percent, according
to a Reuters survey.
The remaining data will likely not convince the bank to go
against expectations and alter the overnight rate next week,
but it could help clear the October rate picture, where current
estimates range from a cut, to no move, to a hike.
BONDS KNOCKED LOWER
Canadian bond prices tumbled as a bigger appetite for risk
convinced investors to take advantage of beaten down share
prices and hand sharp gains to North American equity markets.
Bonds are considered safe-haven investments and generally
do not perform well when equity markets rally.
"We didn't really see any key economic data today and the
main thing is investors seem to have increased their appetite
for risk and plowed money in equity markets, and some of those
funds are coming out of bonds."
The two-year bond fell 19 Canadian cents to C$99.19 to
yield 4.233 percent, while the 10-year bond slid 67 Canadian
cents at C$96.98 to yield 4.383 percent.
The yield spread between the two-year and 10-year bond
moved to 15.0 basis points from 18.1 at the previous close.
The 30-year bond lost C$1.31 to C$109.56 to yield 4.419
percent. In the United States, the 30-year treasury yielded
The three-month when-issued T-bill yielded 3.95 percent
unchanged from the previous close.