Dollar drops despite surge in trade surplus

Thu Apr 10, 2008 10:27am EDT
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar gave back early gains and slipped versus the U.S. dollar on Thursday morning despite surprisingly upbeat economic data that may have reduced near-term fears for the economy.

Bond prices handed back the bulk of earlier gains and were mixed across the curve as the Canadian data clashed with concerns of a possible recession in the United States.

At 10:00 a.m., the Canadian unit was at C$1.0210 to the U.S. dollar, or 97.94 U.S. cents, down from C$1.0190 to the U.S. dollar, or 98.14 U.S. cents, at Wednesday's close.

Data released earlier in the session showed Canada's trade surplus jumped by 78 percent, and the gain was entirely in trade with the United States.

But the upbeat data, a relatively weak U.S. dollar, and higher commodity prices were not enough to spark interest in the Canadian dollar and help it reclaim any of the losses suffered in the previous four sessions.

"Obviously there is not a lot of appetite for the Canadian dollar and it looks like basically Canada is being lumped in with the U.S., and as investors are selling the U.S. they are also staying away from Canada," said Doug Porter, deputy chief economist at BMO Capital Markets.

Slow economic growth has spawned fears of a recession in the United States and that has hampered the Canadian dollar's performance since the Canadian economy relies on the United States as a market for the bulk of its exports.

Movements in the Canadian dollar may also be muted ahead of Bank of Canada Deputy Governor David Longworth's speech, called "Credit Markets, Financial Stability, and Monetary Policy," at 1 p.m. in Lake Louise, Alberta.   Continued...