Canada dollar tops 97 cents, first time since 1977
Reuters, September 14 2007
Canada dollar tops 97 cents, first time since 1977
Fri Sep 14, 2007 5:16 PM ET
By Frank Pingue
TORONTO, Sept 14 (Reuters) - The Canadian dollar shot above 97 U.S. cents for the first time in more than 30 years on Friday as an expected U.S. interest rate cut next week and weak data shook the greenback.
Canadian bond prices finished higher, taking advantage of a weak U.S. retail sales report, while Canadian data supported the market notion that the Bank of Canada will stick to the sidelines when it next sets policy.
The Canadian dollar closed at C$1.0305 to the U.S. dollar, or 97.04 U.S. cents, up from C$1.0327 to the U.S. dollar, or 96.83 U.S. cents, at Thursday's session close.
Earlier in the session the Canadian dollar hit C$1.0277 to the U.S. dollar, or 97.31 U.S. cents, its highest level since February 1977, as it neared parity with the U.S. dollar for the first time since November 1976.
While higher prices for oil and gold, which are major Canadian exports, have been a key factor behind the currency's latest surge, the bulk of its gains have been attributed to U.S. dollar weakness, which intensified last week after a U.S. jobs report fell short of expectations.
The softness in the U.S. dollar continued on Friday because of weaker U.S. retail sales data, opening the door to further Canadian dollar gains.
But the greenback managed to recoup some of its losses and knocked the Canadian dollar from its earlier session high.
"Today's release of U.S. retail sales didn't necessarily help the U.S. dollar and I think the Canadian dollar took some of the benefit of that," said Amarjit Sahota, chief currency strategist at HIFX Plc in San Francisco.
"But I would say that you've got to be pretty cautious going forward because it's quite rare that the U.S. economy goes into a slowdown and Canada doesn't feel the impact."
Weakness in the greenback could carry over into next week ahead of the U.S. Federal Reserve's widely expected decision to cut its key fed funds rate and narrow the Canada-U.S. rate gap in favor of the Canadian currency.
But breaking through parity could be a challenge, at least until the market is convinced U.S. mortgage issues will not spill north of the border to a greater extent.
"While the (U.S. dollar) has broken down lower I think it's still got some more downside potential, albeit not at the same pace that it's seen more recently," Sahota said.
"So you could actually find the market struggle to break through parity until it gets absolute certainty that this is really a U.S. phenomenon and it's not a Canadian phenomena."
BONDS RISE
Canadian bond prices fell at the short end and rose on the long end, almost mirroring the performance of the bigger U.S. treasuries market, which enjoyed the U.S. retail data.
"It's largely on the back of the U.S. retail sales report which was a little softer than expected," said Sal Guatieri, senior economist at BMO Capital Markets.
Canadian data showed manufacturing shipments beat estimates in July while labor productivity rose 0.2 percent in the second quarter.
The two-year bond dropped 2 Canadian cents to C$99.15 to yield 4.269 percent, while the 10-year bond climbed 19 Canadian cents to C$97.38 to yield 4.333 percent.
The yield spread between the two-year and 10-year bond was at 6.4 basis points from 8.9 at the previous close.
The 30-year bond gained 44 Canadian cents to C$110.62 to yield 4.358 percent. In the United States, the 30-year treasury yielded 4.725 percent.
The three-month when-issued T-bill yielded 4.01 percent, down from 4.03 percent at the previous close.