TORONTO (Reuters) - The Canadian dollar lost steam against the U.S. dollar on Thursday for a fifth straight day, hitting its lowest since May 2, as the view that U.S. interest rates would rise overshadowed a much stronger-than-expected reading on Canadian building permits data .
Domestic bond prices fell along with other global markets on hawkish comments out of the European Central Bank.
At 9:28 a.m., the Canadian dollar was at C$1.0208 to the U.S. dollar, or 97.96 U.S. cents, down from C$1.0183 to the U.S. dollar, or 98.20 U.S. cents, at Wednesday’s close.
The currency has dropped 2.7 percent so far this week, largely due to a stronger U.S. dollar, expectations of more interest rate cuts by the Bank of Canada, and the recent drop in oil prices.
The greenback has been boosted by recent comments from U.S. Federal Reserve Chairman Ben Bernanke saying that a weak dollar does not help inflationary pressures.
That has given a bid to U.S. interest rate futures, which favor rising U.S. rates, as the Fed looks to contain inflation.
“We’ve had a really strong move there with interest rates in the States going up, but there’s still an expectation of a couple of rate cuts in Canada, so I think that’s been weighing on it (the Canadian dollar),” said David Bradley, director of foreign exchange at Scotia Capital.
Most market players expect the Bank of Canada will cut its key lending rate by 25 basis points to 2.75 percent when it makes a scheduled rate announcement Tuesday. While recent rafts of soft data have the market leaning toward another cut within the next couple bank meetings.
Thursday’s building permits data for April flew in the face of that forecast though.
A surge in construction plans for multifamily housing and commercial buildings pushed up the value of Canadian building permits in April by 14.5 percent to their highest level since October.
Analysts surveyed by Reuters had expected, on average, a gain of just 0.7 percent.
The currency market took no notice of the report though, possibly because the March building permits release had been negative, and April’s a strong reading may have been seen as the market playing a bit of catch-up, said Bradley.
“I think there is too much demand out there for (U.S.) dollars,” he said. “I was surprised we didn’t get more of a reaction out of that piece of data.”
At 10:00 a.m., the Ivey Purchasing Managers Index for May is due to be released, but the key data for the week comes Friday with employment reports in both Canada and the United States.
The Canadian economy is expected to have added 10,000 jobs in May while the unemployment rate remained steady 6.1 percent, according to Reuters Estimates.
Canadian bond prices dropped and yields rose along with a global trend sparked by European Central Bank President Jean-Claude Trichet, who said the ECB does not exclude raising interest rates in July.
“He suggested that rates in Europe could rise as early as next month,” said Mark Chandler, fixed income strategist at RBC Capital Markets.
“Global bond markets in general have been impressed by the more hawkish tone coming out of most central banks right now.”
The overnight Canadian LIBOR rate was at 2.9817 percent, down from 3.000 percent on Wednesday.
Wednesday’s CORRA rate was 2.9998 percent, down from 3.0010 percent on Tuesday. The Bank of Canada publishes the previous day’s rate at around 9 a.m. daily.
The two-year bond fell 8 Canadian cents to C$101.65 to yield 2.885 percent. The 10-year bond dropped 23 Canadian cents to C$102.50 to yield 3.670 percent.
The yield spread between the two-year and 10-year bond was 78.4 basis points, up from 78.3 at the previous close.
The 30-year bond fell 32 Canadian cents to C$115.01 for a yield of 4.109 percent. In the United States, the 30-year Treasury yielded 4.724 percent.
The three-month when-issued T-bill yielded 2.55 percent, up from 2.54 percent at the previous close.
Editing by Frank McGurty