Canadian dollar ends lower on U.S. economy concern

Fri Jun 6, 2008 5:00pm EDT
 
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 * Concerns about U.S. economy weigh on Canadian dollar
 * Currency ends week with 2.6 percent decline
 * Bond prices rebound to close higher across curve
 By Frank Pingue
 TORONTO, June 6 (Reuters) - The Canadian dollar fell on
Friday as a record surge in oil prices stirred concerns about
the impact a U.S. slowdown could have on Canada, despite the
direct benefits of expensive crude for the resource-oriented
economy.
 The Canadian dollar closed at C$1.0193 to the U.S. dollar,
or 98.11 U.S. cents, down from C$1.0178 to the U.S. dollar, or
98.25 U.S. cents, at Thursday's close.
 For the week, the currency fell 2.6 percent after sliding
in four of the week's five sessions.
 Oil prices surged more than $11 to a record high above $139
a barrel on Friday -- a move that normally would spark a rally
by the Canadian currency, given the country's position as a key
oil exporter.
 However, the jump acted as a drag on the currency, given
the negative implications that higher crude prices could have
for the United States, Canada's main export market by far.
 Crude settled at $138.54 a barrel, up $10.75 or 8.4
percent.
 "The concern is, if we see oil prices stay at these levels,
what will happen to the U.S. economy, especially after today's
U.S. employment numbers," said Matthew Strauss, senior currency
strategist at RBC Capital Markets.
 "It's not a situation where the market is totally ignoring
the oil price, it's just that other factors are more important
and it more than offset any potential of a rally."
 Early in the session the Canadian dollar slipped to
C$1.0216 to the U.S. dollar, or 97.89 U.S. cents, as domestic
employment data missed forecasts and showed job growth slowed
in May to its weakest level since December.
 The Canadian economy added 8,400 jobs in May, below the
median forecast in a Reuters poll for 10,000 jobs.
 But the currency recouped all its losses within half an
hour and then rallied on U.S. dollar weakness after data showed
the U.S. unemployment rate rose in May, which added to fears
U.S. economy could tip into recession.
 BONDS TURN HIGHER
 Canadian bond prices rebounded from recent losses to close
higher across the curve as a Bank of Canada rate cut next week
is still considered a certainty, despite the latest jobs data,
which came in below expectations.
 One expert said dealers likely took the domestic jobs data
with a grain of salt given that it showed the Ontario and
Quebec had job gains while Alberta -- in the midst of an energy
boom -- had job losses.
 "Because of the suspect nature the jobs data it's not going
to have an impact on what the Bank of Canada does on Tuesday
and that's why you didn't quite get the bond market
volatility," said Sheldon Dong, fixed income analyst at TD
Waterhouse Private Investment.
 A Reuters poll taken after the jobs data showed all 12
primary dealers expect the Bank of Canada to lower its key
overnight rate by 25 basis points to 2.75 percent when it
announces its next scheduled rate decision on June 10.
 The two-year bond rose 2 Canadian cents to C$101.67 to
yield 2.876 percent. The 10-year bond added 37 Canadian cents
to C$102.62 to yield 3.655 percent.
 The yield spread between the two-year and 10-year bond was
77.9 basis points, down from 81.8 at the previous close.
 The 30-year bond gained 72 Canadian cents to C$114.82 for a
yield of 4.119 percent. In the United States, the 30-year
Treasury yielded 4.632 percent.
 The three-month when-issued T-bill yielded 2.55 percent,
unchanged from the previous close.