By Frank Pingue
TORONTO, Oct 30 (Reuters) - The Canadian dollar finished a
touch lower against the U.S. currency on Tuesday but stuck
close to its multi-decade high ahead of a widely expected rate
cut by the U.S. Federal Reserve on Wednesday.
Domestic bond prices ended mixed as weaker than expected
producer prices data could not set a convincing tone ahead of
the Fed decision and key jobs data due this week.
The Canadian dollar closed at US$1.0492, making a U.S.
dollar worth 95.31 Canadian cents, down from Monday's close of
US$1.0496, or 95.27 Canadian cents.
During the session the Canadian dollar fell to US$1.0441,
putting a U.S. dollar at 95.77 Canadian cents, due largely to a
rebound in the greenback following a string of recent losses.
By the end of the session the Canadian currency recovered
the bulk of its losses and finished virtually unchanged as the
market avoided any huge bets ahead of the Fed decision.
The U.S. central bank is widely expected to cut its
benchmark interest rate by 25 basis points to 4.50 percent, but
the idea that it might leave rates unchanged also entered the
market after a Wall Street Journal article said a cut was no
longer a sure bet.
"The initial weakness in the Canadian dollar had more to do
with the U.S. dollar recovering some of its losses of the past
few weeks," said Matthew Strauss, senior currency strategist at
RBC Capital Markets. "But overall it's very much in a holding
pattern ahead of the (Fed) meeting tomorrow."
On Monday the Canadian dollar reached a 47-year high above
US$1.05 due largely to lofty commodity prices and speculation
that the Fed could cut rates by as much as half a percentage
point, or signal another rate for later this year.
If the Fed does as expected and decides on a quarter-point
cut it would bring interest rates in the United States and
Canada on par for the first time since February 2005.
After the session closed, Canada's Conservative government
outlined C$60 billion in personal and corporate tax cuts that
would take effect over the next five years.
The opposition Liberal Party said ahead of the announcement
that it would not trigger an election over the government's
fiscal and economic update.
The Canadian dollar eased slightly after the news.
Canadian bond prices ended higher on the short end of the
curve but the gains were capped given uncertainty surrounding
the Fed's rate decision on Wednesday and the tone it offers in
its accompanying statement.
A slew of economic data, most notably key Canadian and U.S.
October employment figures due on Friday, were also hanging
over the bond market and limiting its moves.
The two-year bond rose 3 Canadian cents to C$100.31 to
yield 4.090 percent, while the 10-year bond gained 3 Canadian
cents to C$97.90 to yield 4.268 percent.
The yield spread between the two-year and 10-year bond
moved to 17.8 basis points from 16.7 at the previous close.
The 30-year bond dropped 3 Canadian cents to C$110.83 to
yield 4.345 percent. In the United States, the 30-year treasury
yielded 4.680 percent.
The three-month when-issued T-bill yielded 4.03 percent, up
from 3.99 percent at the previous close.