By Frank Pingue
TORONTO, Nov 20 (Reuters) - The Canadian dollar rose versus
the greenback on Tuesday as a late rally in equity markets and
higher commodity prices boosted the currency, even as tame
inflation data suggested the Bank of Canada had room to cut
Canadian bond prices gave back early, data-related gains
and closed lower as stock markets rose late in the session and
the release of minutes from a U.S. Federal Reserve meeting did
nothing to encourage hopes for aggressive U.S. rate cuts.
The Canadian dollar closed at US$1.0197, valuing each U.S.
dollar at 98.07 Canadian cents, up from Monday's session close
of US$1.0155, or 98.47 Canadian cents.
Helping the Canadian dollar come off its session low of
US$1.0141 and finish higher was a late rally in stock markets,
which were supported mainly by higher commodity prices.
The Canadian dollar often follows prices for oil and gold
and it put together a late rally that wiped out early losses
suffered after a tamer-than-expected report on Canadian
consumer price inflation.
The data showed annual core inflation slowed to 1.8 percent
in October, the first time since June 2006 it has dipped below
the Bank of Canada's 2 percent target. Overall annual inflation
unexpectedly eased to 2.4 percent.
"We were kind of battling the CPI data all day," said David
Bradley, director of foreign exchange trading at Scotia
Capital. "That really should've put the (U.S.) dollar higher,
but the positive commodities and the late equity rally has seen
(U.S.) dollar selling and that seemed to win out by the end."
A speech by Bank of Canada Deputy Governor Pierre Duguay,
which came on the heels of warnings from the bank about growth,
did not offer any clarity on whether it will alter monetary
policy when it next sets rates on Dec. 4.
A Reuters poll conducted after Duguay's speech showed a
slim majority of Canada's primary securities dealers expect the
Bank of Canada to leave interest rates steady next month, but
most see at least one rate cut by the end of January.
It marked a shift from the previous poll taken Nov. 2, when
only one dealer forecast a quarter-point cut in December and
two saw a January cut.
The Bank of Canada has held its overnight lending target
steady at 4.5 percent on its last two announcement dates. It
has not cut rates since April 2004.
Canadian bond prices were not able to hang on to early
gains recorded after the inflation data convinced some analysts
that the Bank of Canada might cut rates as early as December.
Instead, bonds steadily tumbled into negative territory,
due to the rally in equity markets and the Fed minutes, which
offered no clear signal that a rate cutting campaign is
"Obviously the inflation numbers this morning put a pretty
good bid into the Canadian bond market but that has completely
unwound," said Eric Lascelles, chief economics and rates
strategist at TD Securities.
The two-year bond fell 7 Canadian cents to C$101.13 to
yield 3.663 percent. The 10-year bond dropped 29 Canadian cents
to C$99.45 to yield 4.069 percent.
The two-year yield has fallen from 4.303 percent 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 40.6 basis points from 40.3 at the previous close.
The 30-year bond was down 73 Canadian cents at C$112.55 to
yield 4.249 percent. In the United States, the 30-year treasury
yielded 4.501 percent.
The three-month when-issued T-bill yielded 3.96 percent,
down from 3.99 percent at the previous close.
(Editing by Frank McGurty)