Canadian dollar and bonds dip
The Canadian dollar dipped
against the U.S. dollar on Monday but was still within striking
distance of its recent high as the market looked ahead to a
mid-week speech by Bank of Canada Governor David Dodge.
Domestic bond prices, which have been under pressure in
recent months, were stuck lower.
At 8:40 a.m. (1215 GMT) the Canadian unit was at C$1.0615
to the U.S. dollar, or 94.21 U.S. cents, down from C$1.0602 to
the U.S. dollar, or 94.32 U.S. cents, at Friday close.
The Canadian dollar has eased slightly since touching a
30-year high early last week, but each drop in the currency has
been met with another wave of buying.
”Every indication tells us there should be a correction
lower,” said David Watt, senior currency analyst at RBC Capital
Markets. “But any time it seems the Canadian dollar starts to
sell off it seems to get bumped on and people push it back to
levels it has been trading at for the past several days.”
The latest example of that resilience came on Friday as the
Canadian dollar bowed down to a weak Canadian jobs report, only
to find buying interest at lower levels which buoyed it to a
higher finish than where it started.
With no key economic reports due in Canada this week, the
market will turn its attention to Dodge’s speech on Wednesday
to the St. John’s Board of Trade.
Dodge will speak about demographics and labor, but the
market will listen closely for any comments on the Canadian
dollar’s surge and how that could factor into future policy
decisions.
The Bank of Canada has hinted at imminent monetary policy
tightening and market expectations are now calling for rate
increases in July and September. Higher interest rates would
raise the yield on Canadian investments.
”It really just seems like the market is looking for a key
reason to sort of go one way or the other,” said Watt.
BONDS STUCK LOWER AFTER DATA
Canadian bond prices were stuck lower after a pair of
Canadian economic reports did little alter current sentiment.
New housing prices jumped 0.8 percent in April from March,
the biggest monthly gain since August 2006. Canadian industries
ran at 83.0 percent capacity in the first quarter, the first
increase after four quarterly declines, but still a touch shy
of market expectations.
Bond prices have fallen sharply in the past month, given a
slew of up beat economic reports that have had the market
anticipating rate hikes in the near term.
”I don’t think you can attribute it to any particular
positioning at this point in time because frankly the numbers
out today aren’t Grade A figures in Canada and I think I think
people are still taking a breather from last week,” said Eric
Lascelles, strategist at TD Securities.
The two-year bond was down 5 Canadian cents at C$98.23 to
yield 4.703 percent, while the 10-year bond slipped 5 Canadian
cents to C$95.37 to yield 4.637 percent.
The yield spread between the two-year and 10-year bond was
-6.9 basis points, compared with -4.9 basis points at the
previous close.
The 30-year bond slid 20 Canadian cents to C$118.40 to
yield 4.536 percent. In the United States, the 30-year treasury
yielded 5.241 percent.
The three-month when-issued T-bill yielded 4.33 percent,
unchanged from the previous close.