Canada dollar dips in quiet trade before rate move
TORONTO, May 28 (Reuters) - The Canadian dollar fell a
touch against the U.S. dollar on Monday amid lower oil prices,
but no major moves are likely with U.S. markets closed and
ahead of a looming Bank of Canada interest rate decision.
Domestic bond prices dropped on expectations the Bank of
Canada will leave rates steady on Tuesday but follow the
decision with a hawkish statement hinting at future rate
increases.
At 9:35 a.m. (1335 GMT), the Canadian unit was at C$1.0803,
or 92.57 U.S. cents, down from C$1.0794 to the U.S. dollar, or
92.64 U.S. cents, at Friday’s close.
After charging to a fresh 29-1/2-year high in nearly every
session last week, the Canadian dollar gave back some of those
gains in what is expected to be a quiet session.
U.S. financial markets were closed for Memorial Day, while
trading in Europe was thinned by public holidays in Britain,
Germany and Switzerland.
That’s left many market participants looking to the Bank of
Canada’s decision on Tuesday and its accompanying statement.
”Things can happen but I would suspect that today will be a
day of relative calm ahead of tomorrow’s Bank of Canada rate
decision,” said Carlos Leitao, chief economist at Laurentian
Bank of Canada in Montreal.
”I think there will be no change (in tone) but there is
quite a bit of anticipation, especially in the currency market,
that the bank will signal its willingness to increase rates in
the near term.”
Leitao expects the Bank of Canada to rephrase part of its
Monetary Policy Report from April, when it said it was not
overly concerned about a surprising upturn in inflation and a
surge in the Canadian dollar.
Many analysts expect the central bank statement to provide
hints on how aggressively it will head off inflation that has
crept up above its projections.
The Bank of Canada's overnight rate has been steady at 4.25
percent since May 2006, but a Reuters poll last week showed
most of Canada's primary dealers predict a rate hike by the end
of 2007.
A drop in London Brent crude prices to below $70 a barrel
put some pressure on the Canadian dollar, but it still managed
to stay within sight of the multi-decade high of C$1.0776, or
92.80 U.S. cents, it touched on Friday.
BONDS DROP
Canadian bond prices fell, with the focus on the Bank of
Canada amid a dearth of other economic trading incentives.
The bond market has generally retreated for the past few
months as expectations have shifted toward interest-rate
increases.
The two-year bond was down 2 Canadian cents at C$98.70 to
yield 4.433 percent, while the 10-year bond fell 12 Canadian
cents to C$96.80 to yield 4.436 percent.
The yield spread between the two-year and 10-year bond was
-0.3 basis points, compared with -0.6 basis point at the
previous close.
The 30-year bond declined 25 Canadian cents to C$120.90 to
yield 4.39477 percent. In the United States, the 30-year
treasury yielded 5.006 percent.
The three-month when-issued T-bill yielded 4.21 percent, up
from 4.20 percent at the previous close.
