December 6, 2007 / 3:02 PM / 10 years ago

Strong data lifts Canadian dollar, bonds fall

TORONTO (Reuters) - The Canadian dollar rose against U.S. dollar on Thursday as some better than expected economic data helped the currency rebound from an overnight slide caused by lower oil prices.

Canadian bond prices fell on strong economic data from Canada and the United States.

At 9:42 a.m. (1442 GMT), the Canadian dollar was at 98.78 U.S. cents, valuing each U.S. dollar at C$1.0124, up from 98.49 U.S. cents, or C$1.0153, at Wednesday’s North American close.

Statistics Canada said the value of Canadian building permits issued in October jumped 6.8 percent from September, an unexpectedly large rise that resulted from demand for commercial space in Calgary, Alberta and for multi-family housing.

“In a word, unrelenting,” said Stuart Hall, market strategist at HSBC Canada in a note.

“The building sector continues to reflect robust levels of activity in October despite the expectation that as the cold weather sets in, the construction sector will switch around to the jobs completion phase. Not the case in October.”

The report helped lift the struggling Canadian currency from overnight lows around 98.09 U.S. cents,

Healthy U.S. crude oil inventories and lessening geopolitical tensions pushed oil prices lower, with U.S. crude CLc1 falling below $86 a barrel, before rebounding slightly. That in turn was a drag on the Canadian dollar, as oil is one of Canada’s key exports.

Since hitting a modern-day high of US$1.1039 on November 7, the Canadian dollar has retreated about 11 percent, largely due to lower oil prices, a raft of soft domestic economic data, and concerns about the global economic picture.

“The Canada selloff goes beyond what is justified, really,” said Adam Cole, currency strategist at RBC Capital Markets in London.

Cole said the currency has fallen too far too fast, and is due for a slight rebound, before continuing its correction.

Meanwhile, the Organization for Economic Cooperation and Development said in its twice-yearly report it sees global economic growth slowing, with the U.S. economy slowing sharply, but not sliding into recession.

The report, prepared before the Bank of Canada cut interest rates on Tuesday, recommended the Canadian central bank keep rates on hold. The Bank of Canada cut its key overnight lending rate by 25 basis points, and the Canadian dollar has steadily lost ground since.

Elsewhere, the European Central Bank left interest rates on hold at its meeting on Thursday, while the Bank of England cut its key rate by a quarter percentage point to help shelter its economy from the global credit storm.

BONDS LOWER

Canadian bond prices were lower after the domestic building permits data and a positive U.S. jobless claims report.

The U.S. jobless claims report came in slightly better than expected and prompted investors to unwind U.S. Treasuries positions ahead of Friday’s U.S. government payroll report.

“The U.S. labor market is actually looking remarkably good when you pair it up with the ADP (private jobs) report from yesterday,” said Eric Lascelles, chief economics and rates specialist at TD Securities.

Many market watchers had been predicting that the U.S. labor market would suffer in response to the crisis in the U.S. housing market. A strong jobs report on Friday would reduce expectations of aggressive interest rate easing by the Fed.

In Canada, Bank of Canada Governor David Dodge and Deputy Governor Paul Jenkins will appear before the Senate Banking Committee at 11:00 am.

The overnight Canadian Libor rate was at 4.2217 percent, down from 4.2550 percent on Wednesday.

Wednesday’s CORRA rate was 4.2645 percent, down from 4.3422 percent on Tuesday.

The two-year bond slid 6 Canadian cents to C$101.32 to yield 3.552 percent. The 10-year bond declined 18 Canadian cents to C$100.35 to yield 3.955 percent.

The yield spread between the two-year and 10-year bond moved to 37.6 basis points from 38.0 at the previous close.

The 30-year bond dropped 2 Canadian cents to C$114.47 to yield 4.145 percent. In the United States, the 30-year treasury yielded 4.462 percent.

The three-month when-issued T-bill yielded 3.84 percent, unchanged from the previous close.

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