Forex Market News - Canadian dollar trips on Dodge comments, bonds up
Mon Nov 19, 2007 4:30pm EST
By Frank Pingue
TORONTO, Nov 19 (Reuters) - The Canadian dollar ended lower
versus the greenback on Monday as comments on the weekend by
Bank of Canada Governor David Dodge triggered talk of an
interest-rate cut, but higher oil prices cushioned the fall.
Canadian bond prices had little reaction to the release of
several pieces of second-tier economic data and moved higher as
the market started to price in the probability of a rate cut in
The Canadian dollar closed at US$1.0155, valuing each U.S.
dollar at 98.47 Canadian cents, down from Friday's close of
US$1.0269, or 97.38 U.S. cents.
Since hitting a modern-day high of US$1.1039 on Nov. 7, the
Canadian dollar has declined steadily and is now in danger of
falling below parity versus the greenback for the first time
since Oct. 4.
Comments from Dodge were blamed for the currency's latest
pullback. He said risks to world growth have risen in the past
month and would be taken into account when the Bank of Canada
sets monetary policy.
His comments came of the heels of remarks by other senior
central-bank and government officials expressing concern about
the lofty Canadian dollar.
"Various Bank of Canada officials have been stepping up the
rhetoric in emphasizing that if we continue to see the currency
stay this strong we could see a dramatic reduction in output
and inflation," said George Davis, senior currency strategist
at RBC Capital Markets.
"And obviously the comments that Dodge made over the
weekend just hint at the growing risks of an erosion in the
Canadian economy, a slowdown brought up in part by the strength
of the currency."
The Bank of Canada is next scheduled to set monetary policy
on Dec. 4, and while the bulk of Canadian primary dealers do
not expect a rate cut, a growing number are calling for the
central bank to start cutting rates next year.
Last week JP Morgan said it expects the Bank of Canada to
cuts its key overnight rate by 25 basis points at each of its
next four policy-setting dates, bringing the rate to 3.50
percent after its April rate announcement.
Canadian bond prices rose as Dodge's comments convinced
many market players that the central bank could alter monetary
policy for the first time since a quarter-point hike in July to
Even though several market participants started to price in
the idea of a rate cut in December, some experts felt such
action was premature.
"In my view the market is perhaps getting a little ahead of
itself in anticipating a Bank of Canada rate cut for December,"
said Carlos Leitao, chief economist at Laurentian Bank of
Canada in Montreal. "The bank is getting ready to change its
tone and then lower its rates in early 2008."
Two pieces of domestic data released early on Monday had no
noticeable impact on the bond market.
Canadian wholesale trade rose more than expected in
September, rising 1.1 percent from August, compared with a
median forecast for a 0.2 percent climb.
Meanwhile, other data showed foreigners sold C$5.21 billion
in Canadian securities in September, the fifth straight month
The two-year bond rose 40 Canadian cents to C$101.20 to
yield 3.632 percent. The 10-year bond rose 73 Canadian cents to
C$99.74 to yield 4.032 percent.
The two-year yield has fallen from 4.303 on Oct. 5, when a
strong Canadian jobs report suggested there was little room for
a Bank of Canada interest rate cut.
The yield spread between the two-year and 10-year bond
moved to 40.0 basis points from 29.1 at the previous close.
The 30-year bond was up 62 Canadian cents at C$113.24 to
yield 4.212 percent. In the United States, the 30-year treasury
yielded 4.481 percent.
The three-month when-issued T-bill yielded 4.06 percent,
down from 4.02 percent at the previous close.
(Reporting by Frank Pingue; Editing by Peter Galloway
Reuters journalists are subject to the Reuters Editorial Handbook which requires fair presentation and disclosure of relevant interests.
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