Canada dollar drops on U.S. dollar strength, bonds up
Wed Oct 4, 2006 10:10am ET146
TORONTO, Oct 4 (Reuters) - The Canadian dollar fell against the greenback on Wednesday, largely as the U.S. dollar strengthened following a recent drop in oil and commodity prices which was viewed as positive for U.S. economic growth.
Domestic bond prices recovered from Tuesday's losses, getting direction from rising U.S. treasuries after a U.S. report showed weaker-than-expected private sector jobs growth.
At 9:55 a.m. (1355 GMT), the Canadian unit was at C$1.1285 to the U.S. dollar, or 88.61 U.S. cents, down from C$1.1224 to the U.S. dollar, or 89.09 U.S. cents, at Tuesday's close.
"U.S. economic prospects are a little bit improved when you do see energy prices in particular coming down as they have," said Eric Lascelles, strategist at TD Securities. "So I do think what you're seeing here is a U.S. dollar strength story and a little bit of a Canadian dollar weakness story."
U.S. crude oil futures prices pushed off recent lows but were still down seven percent since the start of the week.
That helps the U.S. dollar as it could improve economic growth, spur consumer spending, stem inflation and trim the hefty U.S. trade deficit.
The drop in oil prices on Tuesday lifted the Dow Jones industrial average to a record close as investors bet sliding crude oil prices would stimulate consumer spending and lift corporate profits.
Market participants are now getting set to hear from U.S. Federal Reserve Chairman Ben Bernanke at 12:45 p.m., and will listen closely for any comments on monetary policy.
Such comments could have implications for the market, which otherwise lacks trading incentives ahead of jobs data from both sides of the border on Friday.
The Fed's overnight rate is at 5.25 percent and the Bank of Canada's key rate is at 4.25 percent, with both central banks having left rates unchanged at their last two meetings.
BONDS BOUNCE BACK
Canadian bond prices rebounded slightly from losses in the previous session, but with a bare domestic economic calendar, were forced to look to the U.S. for direction.
The ADP National Employment Report said U.S. private employers added 78,000 jobs last month, lower than the 107,000 increase in August. The median forecast on the September ADP reading among economists polled by Reuters was a 110,000 gain.
"The ADP employment report that came out today was a softer outcome than most were expecting and in turn has suggested you won't see quite as much job strength come Friday (in the United States)," said Lascelles.
The two-year bond was up 1 Canadian cent at C$100.71 at yield 3.902 percent, while the 10-year bond rose 5 Canadian cents to C$100.13 to yield 3.983 percent.
The yield spread between the two-year and 10-year bond was 8.1 basis points, down from 8.4 basis points at the previous close.
The 30-year bond was up 17 Canadian cents at C$127.35 to yield 4.060 percent. In the United States, the 30-year treasury yield was 4.748 percent.
The three-month when-issued T-bill yielded 4.15 percent, unchanged from the previous close.
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