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TORONTO (Reuters) - The Canadian dollar rose against the U.S. dollar on Wednesday after building permits data for December beat market expectations, highlighting the continued strength of the domestic economy.
Domestic bond prices fell as the data helped support the view that while a U.S. slowdown may hurt Canadian economic growth, strong domestic demand may soften the blow.
At 9:34 a.m. (1434 GMT), the Canadian dollar was at C$1.0036 to the U.S. dollar, or 99.64 U.S. cents, up from C$1.0072 to the U.S. dollar, or 99.29 U.S. cents at Tuesday's close.
"The building permits data came in much stronger than expected, confirming the stark difference between the Canadian housing market and the U.S. housing market," said Matthew Strauss, senior currency strategist at RBC Capital Markets.
The value of Canadian building permits increased by 0.4 percent in December over November, said Statistics Canada. Market analysts had on average predicted a flat reading.
For the year, the value of permits issued rose 12.1 percent to a record C$74.26 billion.
Still to come on the data front, the Ivey Purchasing Managers Index for January is due later in the session.
Last month showed a contraction in purchasing activity in Canada for the first time since December 2006, prompting investors to sell the Canadian dollar.
The Ivey index, which is roughly equivalent to the U.S. Institute of Supply Management indexes, makes no distinction between manufacturing and services and is not seasonally adjusted, which leaves it prone to sharp moves.
The U.S. ISM non-manufacturers data on Tuesday showed a sharp and unexpectedly large drop, renewing fears of a U.S. recession.
That caused a selloff in North American equities markets, which carried on into the Asian session, but later stabilized in the European session.
Canadian bond prices fell as North American stock markets looked set to follow the European bourses higher and on the solid reading for Canadian building permits.
North American bond markets rallied on Tuesday's U.S. ISM numbers, which ramped up recession fears, and while there has been some unwinding of that rally, bonds may still climb higher, said Paul Ferley, assistant chief economist at Royal Bank of Canada.
"The trend has been set in the U.S. with growing concerns about their economy and that's spilling over into Canada."
"However, the move is being tempered by recent Canadian data that's not flagging quite as much weakness in economic activity, and an emerging view that if you get a slowdown in the U.S., it will weaken growth here, but continuing high commodity prices may allow the Canadian economy to slightly outperform the U.S.
January job and housing figures will be released on Friday.
The overnight Canadian Libor rate LIBOR01 was at 4.0867 percent, down from 4.0500 on Tuesday.
Tuesday's CORRA rate CORRA= was 3.999 percent, down from 4.01 percent on Monday. The Bank of Canada publishes the previous day's rate at around 9 a.m. daily.
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.