TORONTO, Sept 17 (Reuters) - The Canadian dollar reached a
30-year high against the U.S. dollar on Monday for a third time
in as many sessions, as commodity prices stayed elevated and
the market braced for a U.S. Federal Reserve rate cut.
Domestic bond prices, with no Canadian economic data to
consider, followed U.S. treasuries lower ahead of the Fed's
interest rate decision on Tuesday.
At 9:30 a.m. (1330 GMT), the Canadian unit was at C$1.0274
to the U.S. dollar, or 97.33 U.S. cents, up from C$1.0305 to
the U.S. dollar, or 97.04 U.S. cents, at Friday's close.
During the overnight session the Canadian dollar rose to
C$1.0239 to the U.S. dollar, or 97.67 U.S. cents, which marked
the third straight session the currency has hit a 30-year
against its U.S. counterpart.
Indeed, the Canadian dollar could gain further this week,
given the potential for the Fed to trim rates by 50 basis
points, while Canadian economic data due this week will likely
continue to show signs of a robust economy.
"When you sit back and think about what's going on this
week and the information that's going to be coming out ... it
just continues to point towards the U.S. economy slowing and
the Canadian economy continuing to do well," said David Watt,
senior currency strategist at RBC Capital Market.
In Canada, August consumer price index data is due on
Wednesday, followed by July wholesale trade on Thursday and
July retail trade data on Friday.
A rate cut by the Fed from the current 5.25 percent would
narrow the Canada-U.S. rate gap in favor of the Canadian
dollar, as the Bank of Canada is widely expected to leave its
overnight rate at 4.50 percent when it sets policy on Oct. 16.
With nearly everything favoring the Canadian dollar, the
currency appears set to reach parity with the greenback for the
first time since November 1976. However, its massive short-term
gains could become it's own worst enemy and send it lower.
"The only thing that will do it now is the fact that it's
already come so far that bullish sentiment is going too far and
that we're set up for a possible short-term unwind," said Watt.
"But other than that, it's very hard to sort of argue against
what's going on with the Canadian dollar."
Canadian bond prices followed U.S. treasuries lower as the
market reassessed its expectations for an aggressive rate cut
by the Fed, leaning more toward a 25 basis point cut than 50.
With no domestic data due until later in the week, Canadian
bond prices will likely take their cue from equity markets and
the bigger U.S. treasuries market.
The overnight Canadian dollar Libor rate (LIBOR01: Quote, Profile, Research) was
fixed at 4.7916 percent, inching down towards the Bank of
Canada's 4.5 percent target for the overnight rate.
Meanwhile, Friday's CORRA rate <CORRA=>, the weighted
average of rates on Canadian repurchases between 6 a.m. and 4
p.m., fell to 4.3587 percent from 4.3939 percent on Thursday.
The Bank of Canada publishes the previous day's rate at around
9 a.m. daily.
The two-year bond was down 7 Canadian cents at C$99.11 to
yield 4.295 percent, while the 10-year bond slipped 13 Canadian
cents to C$97.28 to yield 4.346 percent.
The yield spread between the two-year and 10-year bond was
at 5.4 basis points from 6.4 at the previous close.
The 30-year bond slipped 29 Canadian cents to C$110.31 to
yield 4.376 percent. In the United States, the 30-year treasury
yielded 4.744 percent.
The three-month when-issued T-bill yielded 4.05 percent, up
from 4.01 percent at the previous close.