Forex Market News - Canada dollar tripped up by oil prices, rate worry
Mon Nov 26, 2007 5:05pm EST
By Frank Pingue
TORONTO, Nov 26 (Reuters) - The Canadian dollar gave back
early gains to close lower against the U.S. currency on Monday
as uncertainty ahead of next week's Bank of Canada rate
decision ate away at overnight oil-related gains.
Domestic bond prices ended higher as investors fled
equities in favor of more secure assets like government debt.
The Canadian dollar closed at US$1.0088, valuing each U.S.
dollar at 99.12 Canadian cents, down from Friday's close of
US$1.0105, or 98.96 Canadian cents to the U.S. dollar.
The lower close marked a turnaround for the Canadian dollar
as it had touched US$1.0205 during the overnight session when
oil prices rose above $99 a barrel.
But oil prices eventually turned lower for the day and that
forced the commodity-linked currency to relinquish early gains,
while uncertainty about the central bank's rate decision on
Dec. 4 also weighed.
Some experts suggest the domestic currency could duck below
parity with the greenback for the first time since Oct. 4 as a
growing number of market participants priced in a quarter-point
rate cut by the Bank of Canada next week.
"The lack of Canada (dollar) buying heading into the better
liquidity of this week versus last week, as well as ahead of
next week's Bank of Canada meeting, suggest we are looking at
parity as a possible target," said Jack Spitz, director of
foreign exchange at National Bank Financial.
Bank of Canada officials have said the currency's rapid
appreciation -- it hit US$1.1039 on Nov. 7 -- could hurt
domestic growth. But the dollar has fallen sharply from those
lofty levels and could give the central bank a reason to hold
off a rate cut until next year.
"If the Canadian dollar is weakening off substantially
between now and then it may allow the Bank of Canada a little
more leeway not to have to cut rates," said Spitz. "At this
point in time the market is more or less pricing in a cut, but
the uncertainty is weighing on the loonie."
Domestic bond prices rose amid triple-digit declines on
Canadian and U.S. stock markets as investors had less of an
appetite for risk ahead of a busy week of economic data.
The Toronto Stock Exchange closed 146 points lower and the
Dow jones industrial average fell 237 points due in large part
to nagging worries over the health of the U.S. economy.
Canadian data for the week includes third-quarter current
account surplus, producer prices, and raw materials. But the
key report is third-quarter gross domestic product, due on
The two-year bond slipped 22 Canadian cents to C$101.48 to
yield 3.489 percent. The 10-year bond rose 70 Canadian cents to
C$100.70 to yield 3.910 percent.
The yield spread between the two-year and 10-year bond
moved to 42.1 basis points, from 40.4 basis points at the
The 30-year bond gained C$1.37 to C$114.68 to yield 4.134
percent. In the United States, the 30-year treasury yielded
The three-month when-issued T-bill yielded 3.93 percent,
down from 3.95 percent at the previous close.
(Editing by Rob Wilson)
Reuters journalists are subject to the Reuters Editorial Handbook which requires fair presentation and disclosure of relevant interests.
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