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Canadian dollar,

bonds weaker

TORONTO: The Canadian dollar closed weaker after a sudden plunge for both technical and fundamental reasons, analysts said.

Weak retail sales in Canada, which rose a measly 0.1 percent in February, revived fears of another rate cut independently of the US Federal Reserve. This could exacerbate existing negative money market spreads, with the US three-month treasury bill trading at 5.11 percent and Canada's three-month cash bill at 4.78 percent.

The Bank of Canada has an existing target range of 4.5 percent to 5.0 percent. Fears that the currency would come under pressure added to bearish signals overnight, when the unit failed to hold above C$1.3560 and prompted some technical selling.

The Canadian dollar closed at C$1.3650 (US$0.7326) compared to C$1.3623 (US$0.7341) on Tuesday. On the crosses, the Canadian dollar fell to 1.1139 marks against 1.1176 marks on Monday and edged down to 78.06 yen from 78.33 yen from 78.18 yen.

Canadian bonds closed weaker on Wednesday, dragged lower by their US counterparts and hurt by weakness in the Canadian dollar, analysts said.

"We were right up against a resistance level and just couldn't break through so we backed off", said Harvinder Kalirai, Canadian analyst with financial forecasting firm IDEA. "The Canadian dollar started to come off later on and that was hurting things as well".

Canada's 9.0 percent bond due 2025 fell C$0.22 to C$108.48 to yield 8.227 percent while the US 30-year bond fell 17/32 to yield 6.83 percent.

The spread between the Canadian and US benchmark bonds narrowed to 140 basis points from 143 basis points at Tuesday's close.

US and Canadian bonds fell after government auctions in both countries. US bonds had strengthened ahead of the auction of US$12.5 billion in five-year notes. While dealers described the auction as a modest success, bond prices dropped after failing to break through key resistance levels.-Reuter