Canada dollar falls on mild CPI, but parity looms
By Lynne Olver
TORONTO, Sept 19 (Reuters) - The Canadian dollar eased
slightly against the U.S. dollar on Wednesday after breaching
99 U.S. cents overnight, as the hard-hit greenback recovered
from Tuesday's U.S. interest rate cut and both Canadian and
U.S. inflation reports came in below expectations.
Canadian bond prices edged lower alongside U.S.
The currency closed at C$1.0152 to the U.S. dollar, or
98.50 U.S. cents, down from C$1.0138 to the U.S. dollar, or
98.64 U.S. cents, at Tuesday's close.
The Canadian unit extended its recent string of 30-year
highs overnight, hitting C$1.0084, or 99.17 U.S. cents, as the
U.S. Federal Reserve's 50 basis point rate cut on Tuesday
pulled the U.S. currency broadly lower.
But the Canadian dollar failed to keep those early gains
after milder than anticipated consumer price index data for
August was seen keeping Bank of Canada interest rate hikes at
bay for the time being.
Canada's annual inflation rate eased to an eight-month low
of 1.7 percent in August, while the core rate fell to 2.2
percent. Both measures were below analysts' expectations.
Oil prices also eased from record levels above $82 a barrel
to close at $81.93 in New York, while Canadian energy stocks
lost ground on a proposal for higher royalties to be paid in
Alberta's oil sands.
With parity looming in the Canada-U.S. dollar pair -- a
situation not seen since November 1976 -- sentiment about U.S.
economic growth will direct currency market participants, who
are still considering whether the Fed's aggressive rate cut was
a positive or negative move, said Camilla Sutton, a currency
strategist at Scotia Capital in Toronto.
"The market is really focused on (whether) this a good
thing for (U.S.) growth going forward, or is it a bad thing
that they were forced to do this," she said.
Overall the U.S. dollar appears poised for more weakness,
especially with parity hanging over the North American currency
pair. That is acting like a magnet pulling the Canadian unit
higher, Sutton said.
"I don't think there's a lot that stands between where we
are trading now, and the C$1.0000 (level)," she said. "It's
hard to pinpoint the exact timing, we got very close last
night," she added.
Canadian bond prices followed U.S. treasuries lower, as the
Federal Reserve's half-point interest rate cut on Tuesday
raised concern about the eventual emergence of inflation
pressures. Long-dated bonds were hit the hardest.
The two-year bond dipped 8 Canadian cents to C$99.21 to
yield 4.248 percent, while the 10-year bond fell 69 Canadian
cents to C$96.87 to yield 4.399 percent.
The yield spread between the two-year and 10-year bond
widened to 15.1 basis points from 11.4 at the previous close.
The 30-year bond dropped C$1.68 to C$108.95 to
yield 4.453 percent. In the United States, the 30-year treasury
yielded 4.831 percent.
The three-month when-issued T-bill yielded 4.09 percent,
down from 4.10 percent at the previous close.