Canada dollar up after productivity data, bonds up
The Canadian dollar rose
against the U.S. dollar on Monday following the release of
domestic labor productivity data that was stronger than
expected.
Domestic bonds, with no major data to consider, managed to reclaim some of the sharp losses from Friday when strong data in both Canada and the United States eased expectations for interest rate cuts.
At 9:30 a.m. (1330 GMT), the Canadian unit was at C$1.1702 to the U.S. dollar, or 85.46 U.S. cents, up from C$1.1723 to the U.S. dollar, or 85.30 U.S. cents, at Friday’s close.
Canadian labor productivity growth matched the U.S. rate of 0.3 percent in the fourth quarter, Statistics Canada said, but for all of 2006 was just 1.2 percent, trailing the U.S. level of 1.7 percent.
That helped support earlier gains made by the Canadian dollar as the U.S. unit was unable to extend the momentum from last week following a strong U.S. non-farm payrolls report.
Also, comments from a European Central Bank official who said he could imagine raising rates to slow inflation even if that meant curbing economic growth appeared to weigh on the U.S. dollar and opened the door for gains in the Canadian unit.
”There were some hawkish comments coming out of ECB central bank officials that have kept the U.S. dollar on the defensive,” said Carolyn Kwan, markets economist at Scotia Capital. “But the Canadian dollar is actually underperforming against many of of the majors, mostly because of energy prices at this point.”
The resource-linked Canadian dollar did not get any help from oil prices, which slipped below $60 a barrel amid expectations OPEC will not trim output and a view that oil supplies are plentiful in the United States.
The remaining data due out this week, while not considered top-tier, could trigger moves in the Canadian dollar amid a dearth of other key events.
Capacity utilization rates for the fourth quarter of 2006 are due out on Wednesday, while manufacturing shipments data for January will be released on Thursday.
”We’ve got … manufacturing shipments data to finish off the week so I think people are just looking ahead to see what happens with the data,” said Kwan.
BONDS TILT HIGHER
Canadian bonds recovered some of Friday’s data-related losses, when strong Canadian jobs numbers eased expectations for interest rate cuts.
While Canadian economists have been forecasting no rate change by the Bank of Canada, bond prices have suggested the market is positioned for a cut around mid-year.
However, some analysts said the recent steep declines in the equity market had inflated bond prices somewhat, making them an inaccurate gauge of the market’s rate expectations.
”People are sort of revisiting the movements from last week because there was a pretty significant selloff on Friday following the data,” said Kwan.
”I think it’s really just taking back a little bit of what happened on Friday but there’s nothing really fundamental to drive things this morning.”
The two-year bond was up 2 Canadian cents at C$100.44 to yield 3.980 percent, while the 10-year bond rose 17 Canadian cents to C$99.81 to yield 4.025 percent.
The yield spread between the two-year and 10-year bond moved to 4.5 basis points from 6.0 at the previous close.
The 30-year bond rose 33 Canadian cents to C$126.40 to yield 4.097 percent. In the United States, the 30-year treasury yielded 4.699 percent.
The three-month when-issued T-bill yielded 4.19 percent, down from 4.18 percent at the previous close.