Canada dollar rises on data; most bonds end higher

Wed Jul 9, 2008 4:47pm EDT
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 * Canadian dollar gets lift from oil price, housing data
 * Canada housing starts fall in June but top estimates
 * Traders await key June jobs data on Friday
 By Lynne Olver
 TORONTO, July 9 (Reuters) - The Canadian dollar jumped to
its highest level against the U.S. dollar in seven sessions on
Wednesday after stable oil prices, better-than-expected housing
data and falling U.S. stocks helped to push up the currency.
 Canadian bond prices ended mostly higher, especially
shorter-dated maturities, as U.S. Treasuries gained on weaker
North American stock markets.
 The Canadian currency closed at C$1.0111 to the U.S.
dollar, or 98.90 U.S. cents, up from C$1.0191 to the U.S.
dollar, or 98.13 U.S. cents, at Tuesday's close.
 Initially, an early rise in oil prices after two days of
steep declines helped lift the Canadian currency from its
overnight low, although crude futures prices in New York closed
flat at $136.05 a barrel. Canada is a major oil producer and
 Then data showed that Canadian housing starts, while down
4.3 percent in June, had topped the median estimate of
analysts, and the previous month's number was revised up,
indicating a gradual slowdown in homebuilding rather than a
U.S.-style housing crisis.
 "It reinforced the idea that the domestic side of the
Canadian economy is quite resilient," said David Watt, senior
currency strategist at RBC Capital Markets.
 When U.S. stock markets took a downturn, it just made the
U.S. dollar look even less attractive, he said.
 There was good trading action in the currency pair until
the U.S. dollar reached the C$1.0100 area, but little
follow-through momentum ensued and activity tapered off, Watt
 The next big focus for Canadian currency market players
will be the domestic jobs report for June and international
trade data for May, both of which are due on Friday. They will
be the last bits of key economic data before the Bank of
Canada's July 15 interest rate decision.
 The June employment figures are expected to show 10,000 net
new jobs in June, and the unemployment rate is seen unchanged
at 6.1 percent.
 "I think trade numbers are going to be sparkling again,
there's some worry that the job market might turn a little bit
south, but even there we're starting to get signs that the
domestic economy is doing OK," Watt said.
 The central bank is expected to leave its key overnight
rate steady at 3.00 percent, and its accompanying statement
will be scrutinized in detail to see whether officials still
emphasize inflation risks.
 Most bond prices ended slightly higher after being down
earlier in the day, taking their cue from the upswing in U.S.
Treasuries as stock markets weakened.
 "I think it's largely in response to the renewed pullback
we're seeing in equities, there's a little bit of a
flight-to-safety bid going on for Treasuries, and we're seeing
a faint echo of that in Canada," said Doug Porter, deputy chief
economist at BMO Capital Markets.
 Friday's report on jobs could move the bond market, he
 "If we saw a surprisingly strong number and a further
pickup in wages, I think that would hit bonds pretty hard,"
Porter said.
 The two-year bond rose 5 Canadian cents to C$101.04 to
yield 3.180 percent. The 10-year bond was up 17 Canadian cents
at C$102.42 to yield 3.678 percent.
 The yield spread between the two-year and 10-year bond was
49.8 basis points, up from 49.5 at the previous close.
 The 30-year bond fell 11 Canadian cents to C$116.04 for a
yield of 4.052 percent. In the United States, the 30-year
treasury yielded 4.4157 percent.
 The three-month when-issued T-bill yielded 2.46 percent,
down from 2.48 percent at the previous close.
 The Bank of Canada auctioned C$2.5 billion of 10-year
government bonds on Wednesday with a coupon of 4.25 percent.
The bond's average yield was 3.773 percent at a price of
 (Editing by Peter Galloway)