Canadian dollar rattled by U.S. recession worries
By Frank Pingue
TORONTO, Feb 5 (Reuters) - The Canadian dollar closed lower against the U.S. dollar on Tuesday as another bout of recession talk south of the border triggered concerns about what impact that could have on demand for Canadian commodities.
Domestic bond prices finished higher across the curve as investors checked out of riskier investments like equities and turned to the security offered by government debt.
The Canadian dollar closed at C$1.0072 to the U.S. dollar, or 99.29 U.S. cents, down from US$1.0067, or 99.33 Canadian cents to the U.S. dollar, at Monday's close.
During the North American session, the currency fell to C$1.0082, or 99.19 U.S. cents, which was just shy of its lowest level since Jan. 28.
The Canadian dollar's slide came after Institute for Supply Management data showed a sharp drop in activity in the U.S. service sector. That reinforced fears the U.S. economy is slowing, which could spell trouble for the Canadian economy, which relies heavily on trade with the United States.
"I think recession, not just concerns but reality, are front and center for markets again," said Doug Porter, deputy chief economist at BMO Capital Markets.
"The very weak non-manufacturing ISM took a bite out of oil prices and commodity prices in general, and that's sideswiped the Canadian dollar big time."
Oil prices shed more than $2 a barrel to a nearly two-week low as the U.S. data reinforced fears that energy demand will slow. Canada is a major producer and exporter of oil and its currency is often influenced by the commodity's price.
Canadian bond prices rose on a flight to safety, given the latest U.S. recession worries, but moves in the domestic bond market were limited ahead of key data due later this week.
January job and housing figures will be released on Friday, following Wednesday's December building permits data and Ivey Purchasing Managers Index report.
Building permits and Ivey data rarely have a significant impact, but they did garner plenty of attention last month and will likely be watched with some care this time around.
"Both of them are coming off very weak readings in the prior month and it will be interesting to see if they stay at those kinds of very low levels," said Porter.
"But, realistically, with employment (numbers) just around the corner you wouldn't think they could have as big an impact as they did a month ago."
The two-year bond rose 22 Canadian cents to C$102.14 to yield 3.028 percent. The 10-year bond climbed 63 Canadian cents to C$101.86 to yield 3.761 percent.
The yield spread between the two- and 10-year bond was 73.3 basis points, up from 68.8 points at the previous close.
The 30-year bond jumped 96 Canadian cents to C$115.16 to yield 4.105 percent. In the United States, the 30-year treasury yielded 4.331 percent.
The three-month when-issued T-bill yielded 3.29 percent, down from 3.35 percent at the previous close.
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