Canada dollar edges lower in last session of 2007

By Frank Pingue

TORONTO, Dec 31 (Reuters) - The Canadian dollar was a touch
lower versus the U.S. currency on Monday and looked set to
quietly close out 2007, a year in which it reached parity
versus its U.S. counterpart.

Domestic bond prices, with no Canadian economic data to
consider, followed the bigger U.S. treasury market higher.

At 9:30 a.m. (1430 GMT), the Canadian dollar was at
US$1.0175, valuing a U.S. dollar at 98.28 Canadian cents, down
from Friday's close of US$1.0198, or 98.05 Canadian cents per
U.S. dollar.

Trading desks were thinly staffed ahead of the New Year's
day holiday on Tuesday, leaving the domestic currency, which
hit a five-week high last week, little chance of making a
significant move.

"I think we will remain in this familiar range because of
the low liquidity environment," said Matthew Strauss, senior
currency strategist at RBC Capital Markets. "And it's unlikely
in this environment that any investor or short-term players
will take a directional bid on the currency."

In September, the Canadian dollar pushed past parity with
the U.S. dollar for the first time since 1976. It hit a
modern-day high of US$1.1039 in November before sliding back.

The bulk of its rise was pegged to higher commodity prices,
strong domestic data, merger-related interest, a weaker U.S.
dollar and higher domestic interest rates.

The Canadian dollar is expected to keep its footing in the
early part of 2007, but it is unlikely to retest the intraday
high in hit in November.

"In the first quarter we could see the currency trade just
above parity around current levels, but as we move forward in
to the year it will start struggling," said Strauss.

BONDS RISE

Canadian bond prices were higher across the curve as
dealers took their cue from the U.S. market, given the lack of
any domestic data to influence trade.

The desire for bonds carried over from last week U.S. upped
the chances of a U.S. Federal Reserve rate cut next month.

The Canadian economic calendar is empty until the release
of the industrial product price and raw materials price indexes
for November on Jan. 4.

The overnight Canadian Libor rate LIBOR01 was at 4.35500
percent, up from 4.2500 percent on Friday.

Monday's CORRA rate CORRA= was at 4.2595 percent, down
from 4.3107 percent on Friday. The Bank of Canada publishes the
previous day's rate at around 9 a.m. daily.

The two-year bond rose 10 Canadian cents to C$100.96 to
yield 3.721 percent. The 10-year bond was up 25 Canadian cents
at C$100.13 to yield 3.983 percent.

The yield spread between the two-year and 10-year bond was
26.2 basis points, up from 24.0 basis points at the previous
close.

The 30-year bond rose 51 Canadian cents to C$115.74 to
yield 4.076 percent. In the United States, the 30-year treasury
yielded 4.472 percent.

The three-month when-issued T-bill yielded 3.89 percent, up
from 3.87 at the previous close.

(Editing by Ka Yan Ng)