By Frank Pingue
TORONTO, Sept 17 (Reuters) - The Canadian dollar rose to a
30-year high versus the U.S. greenback on Monday, eclipsing the
multi-decade highs set in the last two sessions, as commodity
prices rose and the market awaited a U.S. interest rate cut.
Domestic bond prices finished mixed, with gains on the long
end ahead of a U.S. Federal Reserve meeting that is expected to
deliver a rate cut and signal further cuts in the future.
The Canadian dollar closed at C$1.0280 to the U.S. dollar,
or 97.28 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 hit a 30-year against
its U.S. counterpart
The currency made two attempts at breaching the
multi-decade high during the North American session but was
denied as the market pocketed some recent gains.
A key factor behind the Canadian dollar's gains on Monday
and in recent sessions is the widespread expectations for the
U.S. central bank to cut its key fed funds rate on Tuesday.
If the Fed cuts rates from 5.25 percent it 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 next sets policy on Oct. 16.
"It's basically the view now that ... the Fed is cutting
rates tomorrow and likely also at the next few meetings," said
Carlos Leitao, chief economist at Laurentian Bank of Canada in
Montreal. "And those good old commodities ... are what is still
fueling the currency."
Oil prices reached a record above $80 a barrel while gold
prices hit a 16-month high. Both developments are supportive of
the domestic currency as Canada is a major producer and
exporter of both commodities.
The Canadian dollar's recent performance -- it is up about
3 percent in the past week -- has put it within reach of par
with the greenback, a level it has not seen since November
Whether the Canadian dollar extends its recent push will
depend not only on the direction of commodity prices, but also
a largely the tone of the Fed's statement on Tuesday.
"If indeed the signals are fairly clear that there will be
further rate cuts ... then the Canadian dollar could gain some
more," said Leitao.
"If, however, the Fed is appearing to be a little bit more
ambivalent and one can't consider further rate cuts a done
deal, then the Canadian dollar could back up a little bit."
Canadian bond were mixed ahead of Tuesday's widely expected
Fed rate cut, clearing the way for slim gains on the long-end
while shorter-term bonds fell.
And 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.
Domestic data due this week includes the August consumer
price index on Wednesday, July wholesale trade on Thursday and
July retail trade on Friday.
The two-year bond dropped 3 Canadian cents to C$99.15 to
yield 4.270 percent, while the 10-year bond rose 21 Canadian
cents to C$97.62 to yield 4.301 percent.
The yield spread between the two-year and 10-year bond was
at 3.1 basis points from 6.4 at the previous close.
The 30-year bond increased 61 Canadian cents to C$111.21 to
yield 4.325 percent. In the United States, the 30-year treasury
yielded 4.700 percent.
The three-month when-issued T-bill yielded 4.08 percent, up
from 4.01 percent at the previous close.