By Frank Pingue
TORONTO, Oct 16 (Reuters) - The Canadian dollar finished
lower versus the U.S. currency on Tuesday as concerns about
global growth shook the commodity-linked currency while the
Bank of Canada signaled a very slight easing bias.
Domestic bond prices ended higher as falling North American
equity markets and credit market worries triggered a rush into
more secure investments like government bonds.
The Canadian dollar closed at 98.00 Canadian cents to the
U.S. dollar, or US$1.0204, down from 97.64 Canadian cents to
the U.S. dollar, or US$1.0242, at Monday's close.
The currency hit a session high of 97.45 Canadian cents to
the U.S. dollar, or US$1.0262, moments after the Bank of Canada
issued a more dovish statement and said its key interest rate
would remain steady at 4.50 percent, as expected.
But the rise was short-lived and credited solely to a
weaker greenback after U.S. data showed a record net capital
outflow in August.
In its statement, the Bank of Canada said it assumes the
Canadian dollar will average 98 U.S. cents, the midpoint of its
trading range since its July Monetary Policy Report, but below
its current level. The bank also cut its 2008 growth forecast
to 2.3 percent from its July forecast of 2.6 percent.
The domestic currency eventually fell and stayed down for
the rest of the session as the Bank of Canada seems content to
leave interest rates steady for the foreseeable future while
higher oil prices triggered concerns about global growth.
"The overriding concern at the moment is how a higher oil
price will impact global growth," said Matthew Strauss, senior
currency strategist at RBC Capital Markets. "And consequently
we are seeing equity markets selling off and carry trades under
pressure, and also commodity-based currencies."
The Canadian dollar often follows oil and gold prices since
Canada is a major producer and exporter of both, but oil prices
hit a third record high in as many days and the market is
considering what impact that could have on global growth.
The market will pay close attention the Conservative
government Speech from the Throne later on Tuesday, which could
force an election if it is voted down by the opposition.
Traders will also look to the bank's Monetary Policy Report
update on Thursday, but no surprises are expected as recent
MPRs have been consistent with the original statement.
BONDS END HIGHER
Canadian bond prices followed U.S. treasuries to a higher
close as dealers sought their security in an environment of
falling equity markets and nagging credit market worries.
The domestic bond market was little changed after the Bank
of Canada rate decision, handing back a portion of early gains
but managing to stick higher.
Bond prices will likely be influenced by domestic data due
this week, including August wholesale trade data on Wednesday
and the key September consumer price index data on Friday.
The two-year bond rose 10 Canadian cents to C$99.87 to
yield 4.315 percent, while the 10-year bond rose 21 Canadian
cents to C$96.45 to yield 4.457 percent.
The yield spread between the two-year and 10-year bond
moved to 14.2 basis points from 11.5 at the previous close.
The 30-year bond rose 34 Canadian cents to C$108.49 to
yield 4.479 percent. In the United States, the 30-year treasury
yielded 4.901 percent.
The three-month when-issued T-bill yielded 4.04 percent,
unchanged from the previous close.