February 5, 2009 / 4:53 PM / 9 years ago

CANADA FX DEBT-C$ sticks higher after choppy morning trade

* C$ bounces around but ultimately holds gains

* Bond prices rebound after weak U.S. data (Recasts)

By Frank Pingue

TORONTO, Feb 5 (Reuters) - The Canadian dollar was slightly higher against the U.S. dollar late Thursday morning as traders shifted away from the greenback following its early rise.

Fresh concerns about the European economy had given an boost to the U.S. currency, as traders bought the greenback as a safe haven play. But soft U.S. jobs data convinced some to lighten up on long U.S. dollar positions, helping the Canadian dollar bounce back from its early low.

At 11:45 a.m. (1645 GMT), the Canadian unit was at C$1.2296 to the U.S. dollar, or 81.33 U.S. cents, up from C$1.2320 to the U.S. dollar, or 81.17 U.S. cents, at Wednesday’s close.

“Generally, things in Canada may not be as worse as they are globally and I think that’s the big-picture reason why Canada hasn’t really weakened off,” said Steve Butler, director of foreign exchange trading at Scotia Capital.

“Maybe there is some hope that we are going to have a rough go of it, but maybe it’s not going to be so bad here.”

Butler said some recent factors helping to keep Canada’s dollar from tumbling included recent merger-related interest and growth forecasts from the Bank of Canada that were less bearish than many had expected.

Canada’s currency dropped to C$1.2339 to the U.S. dollar, or 81.04 U.S. cents, early in the North American session and later rallied as high as C$1.2260 to the U.S. dollar, or 81.57 U.S. cents.

The early drop followed comments from European Central Bank President Jean-Claude Trichet, who said the euro zone was in an extended downturn. That set off the greenback’s rally.

But that move was short-lived as data released around the same time showed a bigger than expected jump in weekly U.S. jobless claims.

Another support for the Canadian dollar was data that showed the value of domestic building permits fell by less than had been expected in December.

Much of the market’s focus will now shift to Friday’s key employment reports from both Canada and the United States, with each expected to show more job losses.

“We are in the lead up to (Friday‘s) twin employment reports, and as much as we are pessimistic on the Canadian job figures we are equally so on the U.S. figures,” said Eric Lascelles, chief economics and rates strategist at TD Securities.

The Canadian report is expected to show the economy shed 40,000 jobs in January and support calls for the Bank of Canada to cut its key rate below the current 50-year low of 1 percent. The U.S. report is expected to show 525,000 jobs were lost in January.

BOND PRICES REBOUND

Canadian bond prices were higher across the curve given the latest U.S. data, but their move was limited as North American equities turned positive after some upbeat corporate news.

The rally in bond prices follows a string of declines triggered by some better than expected data throughout the week and nagging concerns about supply in both Canada and the United States.

“There is a bit of risk aversion going on,” said Lascelles.

The two-year bond was up 5 Canadian cents at C$102.58 to yield 1.301 percent, while the 10-year bond rose 45 Canadian cents to C$109.50 to yield 3.068 percent.

The 30-year bond rallied C$1.00 to C$121.90 to yield 3.739 percent. In the United States, the 30-year treasury yielded 3.624 percent.

Editing by Rob Wilson

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