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Canadian dollar ends down as oil prices stumble
November 30, 2007 / 10:32 PM / 10 years ago

Canadian dollar ends down as oil prices stumble

TORONTO, Nov 30 (Reuters) - The Canadian dollar slipped on Friday and closed at exactly par with the U.S. dollar -- C$1 for US$1 -- as oil prices weighed on the commodity-linked currency, while the market looked ahead to a Bank of Canada interest rate announcement next week.

Canadian bond prices finished lower after big gains in the previous session as data showed the Canadian economy grew more than expected in the third quarter.

According to official Bank of Canada numbers, the Canadian dollar closed at US$1.0000 on Friday, down from US$1.0028 at Thursday’s North American session close, which valued a U.S. dollar at 99.72 Canadian cents.

Oil prices dropped to a one-month low and helped extend skid the Canadian dollar has been on since it hit a modern-day high above US$1.10 on Nov. 7. Canada is a key producer and exporter of oil and its currency often moves in tandem with oil prices.

Traders also exited Canadian dollar positions ahead of next week’s Bank of Canada rate announcement, which some experts feel could be the central bank’s first rate cut since 2004.

“The oil link with the Canadian dollar has lessened to an extent, but the fact that we are getting concerns about global economic growth for next year does seem to be playing into it to an extent,” said David Watt, senior currency strategist at RBC Capital Markets.

“We’ve also got the clear risk that the Bank of Canada can cut interest rates on Dec. 4. They’ve clearly indicated they are prepared to do so, so the market is sort of getting prepared just in case the bank does cut next week.”

A Reuters poll taken on Friday after the gross domestic product data, showed a majority of Canada’s primary securities dealers predict the bank would leave rates steady next week, but nearly all of them now expect a rate cut in January.

Since the currency’s rise to record levels earlier this month, several central bank officials and senior government officials have expressed concern about the harm a rapidly rising Canadian dollar can inflict on manufacturers and overall economic growth.

The Canadian dollar spent the North American session in a range of C$1.0020 to the U.S. dollar, or 99.80 U.S. cents, and US$1.0006.

BONDS SLIP

Canadian bond prices were down ahead of the GDP data and remained lower as the report came in stronger than analysts expected.

The data is expected to complicate the Bank of Canada’s rate decision as it considers whether to cut rates because of signs that the lofty Canadian dollar is hurting exports.

The GDP data also followed a string of weak economic data that amplified concerns about the effects of a strong currency and the U.S. economic slowdown on Canadian manufacturers.

The two-year bond fell 1 Canadian cent to C$101.12 to yield 3.659 percent. The 10-year bond fell 6 Canadian cents to C$100.16 to yield 3.980 percent.

The yield spread between the two-year and 10-year bond moved to 32.1 basis points from 30.9 basis points at the previous close.

The 30-year bond dropped 13 Canadian cents to C$114.44 to yield 4.147 percent. In the United States, the 30-year Treasury yielded 4.383 percent.

The three-month when-issued T-bill yielded 3.92 percent, down from 3.95 percent at the previous close.

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