CANADA FX DEBT-C$ dips on data; Canada tightens mortgage rules

Thu Jun 21, 2012 9:57am EDT
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* C$ weaker at C$1.0214 vs US$, or 97.90 U.S. cents
    * Retail sales expectedly drop in April
    * Canada tightens rules for mortgages and household
    * Bonds higher across curve

    By Jennifer Kwan
    TORONTO, June 21 (Reuters) - Canada's dollar weakened
slightly against its U.S. counterpart on Thursday on investor
concerns about global growth and domestic data that showed a
surprise drop in retail sales in April.
    In another sign that Canadian second quarter growth could be
unimpressive, retail sales in April posted a surprise 0.5
percent drop from March on general weakness. Analysts had
predicted a 0.3 percent month-on-month increase. 
    "That's negative in terms of how it flows into GDP," said
Camilla Sutton, chief currency strategist at Scotiabank. 
    Also in the spotlight, the Canadian government tightened
rules for mortgages and household borrowing on Thursday to make
it harder for home buyers and homeowners to take on massive debt
in an attempt to cool the still hot domestic housing market.
    While the news is generally positive, the move could put
downward pressure on the Canadian dollar as it might take
pressure off the Bank of Canada to move quickly on interest
rates, said Sutton.
    "From our perspective, it dampens the housing market. The
positive side is that it dampens it as opposed to crushing a
bubble that is allowed to just form year after year after year.
Having a slow decline is much better than having a complete
meltdown when a bubble is burst," she said.
    "It takes some of the pressure off the Bank of Canada," she
    Earlier this month, the Bank of Canada continued to signal
it might have to raise interest rates, but it softened its
recent hawkish language a bit in reaction to a sharp
deterioration in global financial conditions sparked by renewed
fears about Europe. 
    At around 9:40 a.m. (1340 GMT), the Canadian dollar 
was at C$1.0214 versus the U.S. dollar, or 97.90 U.S. cents,
down from Wednesday's finish at C$1.0192.
    The Canadian dollar had already been weaker heading into the
North American session, tracking overseas markets. Sutton sees
the currency trading in a range of C$1.0167 to C$1.0244 against
the greenback.
    Rising concern about global growth triggered falls in shares
and commodities on Thursday after data showed Chinese and
European factory activity slowing and the Federal Reserve
extended its stimulus policy due to a weakening U.S. recovery.
    Canadian bond prices were slightly higher across the curve,
with Canada's two-year bond up 4 Canadian cents to
yield 1.074 percent, while the benchmark 10-year bond
 was up 5 Canadian cents to yield 1.782 percent.