CANADA FX DEBT-C$ ends weaker on soft U.S. data, Europe

Thu Apr 19, 2012 4:54pm EDT
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* C$ ends at C$0.9952 vs US$, or $1.0048
    * U.S. data weighs on risk sentiment
    * Europe offsets Bank of Canada's rosier view
    * Bond prices mixed

    By Jon Cook	
    TORONTO, April 19 (Reuters) - Canada's dollar slid against
its U.S. counterpart for the second straight day on Thursday as
soft U.S. data and euro zone worries hurt sentiment and
threatened to reverse this week's gains driven by the Bank of
Canada's more upbeat domestic forecast.	
    Data on Thursday raised doubts about the strength of the
American economic recovery. New weekly U.S. claims for
unemployment benefits were above expectations, factory activity
in the Mid-Atlantic region slowed sharply and home resales
dropped in March for a second straight month. 	
    "The data got things rolling as far as equities turning
lower and the Canadian dollar starting to trade towards the top
(of the range)," said David Bradley, a director of foreign
exchange trading at Scotia Capital.	
    Concerns over European finances also clouded the outlook, as
Spanish government bond yields rose after a debt auction and
French yields rose on rumors, later denied, that the country's
credit rating may be downgraded. 	
    The Canadian dollar ended at C$0.9952 against the
U.S. dollar, or $1.0048, down from Wednesday's close at C$0.9913
against the U.S. dollar, or $1.0088. It touched a session low at
    The negative external forces ate into the Canadian dollar's
gains from earlier in the week. The currency jumped after the
Bank of Canada surprised the market with a more bullish economic
forecast and signaled it was starting to think more seriously
about tightening monetary policy. 	
    But a slightly more cautious tone in the central bank's
Monetary Policy Report on Wednesday slowed the Canadian dollar's
momentum, said Bradley.	
    "There was a lot of euphoria about the bank statement on
Tuesday, but then the MPR was a little less hawkish," said
Scotia's Bradley. "A lot of this is disappointment trade."	
    While the Bank of Canada raised its growth forecasts for the
first three quarters of 2012, a Reuters poll of 30 economists
released on Thursday showed Canada's economy will lag the United
States this year, predicting overall growth of 2.1 percent in
2012 compared to the bank's forecast of 2.4 percent. 	
    Still, the more hawkish central bank outlook has prompted
several of the country's primary dealers to pull forward their
forecasts for an interest rate hike, according to a Reuters
poll, with the central bank now expected to tighten policy early
next year. 	
    John Curran, senior vice president at CanadianForex, said
the bank's rosier outlook was interpreted "as a feather in
Canada's cap" and sparked a flurry of Canadian dollar buying.
But with so many investors being long on the currency there was
bound to be "a filtering out of that trade."	
    Curran saw the currency weakening further against the
greenback, but added there should be good demand to buy the
Canadian dollar as it gets closer to parity. He said it would
likely remain in its range from the last few months, between
C$0.9850 and C$1.0050.	
    Canadian government bond prices were mixed. The two-year
bond edged down 1.5 Canadian cents to yield 1.331
percent. The benchmark 10-year bond was unchanged
with a yield of 2.044 percent.