Forex Market News - Canadian dollar drops ahead of BoC rate decision
Mon Oct 15, 2007 4:28pm EDT
By Frank Pingue
TORONTO, Oct 15 (Reuters) - The Canadian dollar finished
lower against the greenback on Monday as uncertainty
surrounding Tuesday's Bank of Canada rate announcement and the
formal policy outline by the Conservative government at the
re-opening of Parliament offset support from commodity prices.
Domestic bond prices, with no major Canadian economic data
to consider, took advantage of market uncertainty to rally from
early losses and finished higher across the curve.
The Canadian dollar closed at 97.64 Canadian cents to the
U.S. dollar, or US$1.0242, down from 97.31 Canadian cents to
the U.S. dollar, or US$1.0276, at Friday's close.
The lower close for the domestic currency came amid a rise
in oil prices to a record above $86 a barrel and gold prices
that closed near a 28-year peak. Canada is a major producer and
exporter of oil and gold and its currency often moves in tandem
with those commodity prices.
But the central bank's rate decision and statement due on
Tuesday morning and the government's Speech from the Throne
later in the day, which could force an election if it is voted
down by the opposition, kept the currency under pressure for
much the session.
"There might be a little bit of uncertainty around the
Throne Speech and what the outcome is going to be in terms of
is it going to garner the widespread support that's required or
are we going to move into an election scenario," said George
Davis, chief technical strategist at RBC Capital Markets.
"And people will be looking at the (Bank of Canada)
statement to get an idea of what the bank's thoughts are in
terms of inflation and in terms of the potential slowdown
scenario emanating from the U.S."
Canada's primary dealers are unanimous is calling for the
Bank of Canada to leave its key overnight rate steady at 4.50
percent when it sets policy at 9:00 a.m. (1300 GMT) on Tuesday,
but the statement could set the tone for the session.
After hitting a 31-year high of 97.07 Canadian cents to the
U.S. dollar, or US$1.0312, the currency spent the North
American session in a wide range of 97.78 Canadian cents to the
U.S. dollar to 97.22 Canadian cents to the U.S. dollar.
BONDS BOUNCE BACK
Canadian bond prices rebounded from early losses and closed
higher despite economic data from Canada and the United States
came in ahead of expectations.
North American equity markets finished lower as investors
opted out of risky assets in favor of the security offered by
In Canada, the September leading indicator rose 0.4 percent
from 0.3 percent in August and topped median forecast for a 0.3
percent gain, according to a Reuters survey.
And in the United States, the New York Federal Reserve's
report on regional manufacturing activities beat estimates.
But neither economic report was considered first-tier data
and the impact was short-lived. Bond prices spent the rest of
the session clawing back into positive territory.
The Bank of Canada left C$686 million in the Large Value
Transfer System overnight on Monday and plans to leave C$500
million in the system on Tuesday.
The two-year bond was up 1 Canadian cent at C$99.76 to
yield 4.368 percent, while the 10-year bond rose 5 Canadian
cents to C$96.25 to yield 4.483 percent.
The yield spread between the two-year and 10-year bond
moved to 11.5 basis points from 12.4 at the previous close.
The 30-year bond rose 7 Canadian cents to C$108.12 to
yield 4.500 percent. In the United States, the 30-year treasury
yielded 4.912 percent.
The three-month when-issued T-bill yielded 4.04, up from
4.03 percent at the previous close.
Reuters journalists are subject to the Reuters Editorial Handbook which requires fair presentation and disclosure of relevant interests.
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