960419

Canadian dollar

weaker, bonds

mixed

TORONTO: The Canadian dollar closed weaker in North American markets on Thursday, after the Bank of Canada caught many financial players offguard by cutting short-term interest rates by 25 basis points.

"It was an unexpected element and people were positioned long Canada dollars", said Bank of Nova Scotia trader Mark Ellerbeck. Investors scrambled to change sides after betting Canada's currency would strengthen.

The unit closed weaker at C$1.3629 (US$0.7337) from Wednesday's close of C$1.3565 (US$0.7372), finally pushed out of its two-week range of C$1.3550 to C$1.3600.

Canada's central bank cut short-term rates after the German Bundesbank cut its discount rate to 2.5 percent from 3.0 percent and lowered its Lombard rate to 4.5 percent from 5.0 percent.

On the crosses, the Canada dollar dipped to 1.1022 marks from Wednesday's close of 1.1101 marks and fell to 78.23 yen from 79.26 yen.

BONDS MIXED

Canadian bonds closed mixed on Thursday, boosted on the short end by a Bank of Canada short-term interest rate cut but pulled down on the long end by falling a US market, analysts said.

"The Bank of Canada cut was a little bit unexpected by most people", said Jim Webber, TD Securities Inc's director of fixed income research. The central bank dropped its target range for the overnight lending rate to 4.5-5.0 percent from 4.75-5.25 percent. Canada's 9.00 percent bond due 2025 fell C$0.23 to C$108.09 to yield 8.260 percent while the US 30-year bond dropped 9/32 to yield 6.84 percent.

The spread between the Canadian and US benchmark bonds totalled 142 basis points, down slightly from Wednesday's 143 difference. The US market fell after a stronger than expected Philadelphia Fed Survey. The April diffusion index of business activity rose to 17.3 from -0.1 in March.

In other prices, the 8.75 percent of 2005 slipped C$0.09 to C$106.60 to yield 7.761 percent against the US 10-year which yielded 6.56 percent for a spread of 120 basis points.

In the front end, the three-month cash bill was trading at 4.82 percent, posting a deeper negative spread against the US three-month at 4.99 percent.-Reuter