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TORONTO (Reuters) - The Canadian dollar sagged against a stronger U.S. dollar on Thursday as some much stronger-than-expected U.S. data eased market nerves regarding the chances of a U.S. recession, overshadowing several pieces of solid Canadian data.
Canadian bond prices fell after the data releases, which included a surprise to the upside for Canadian manufacturing sales, despite the drag of the strong Canadian dollar.
At 9:54 a.m. the Canadian dollar was at C$1.0150 to the U.S. dollar, or 98.52 U.S. cents, down from C$1.0132 to the U.S. dollar, or 98.70 U.S. cents, at Wednesday's session close.
Statistics Canada said on Thursday that Canadian manufacturing sales unexpectedly inched 0.1 percent higher in October as strong sales in aerospace and other sectors offset weakness in the auto industry.
Analysts in a Reuters survey had expected factory sales to decline by 1 percent, due to the strong Canadian currency and the slowdown in the U.S. economy.
But while the Canadian manufacturing numbers were seen by many as a pleasant surprise, they were mostly overshadowed by U.S. data on retail sales and producer prices which came in much higher than the market anticipated.
"Certainly, the retail sales being so strong, I think that was a bit of a shocker and gave the U.S. dollar a bit of a boost," said Steve Butler, director of foreign exchange at Scotia Capital.
The data showed that U.S. consumers are still spending, easing market concerns that the ongoing credit crunch and the U.S. housing crisis could push the world's biggest economy into a recession.
Other Canadian data included labor productivity, which grew by 0.2 percent in the third quarter, in line with expectations but well below the U.S. rate of 1.6 percent.
"Despite the monumental challenge facing Canadian business from the surge in the loonie over the past year, labor productivity has remained muted, at best," said Doug Porter, deputy chief economist at BMO Capital Markets in a note.
"This is the ugly underbelly to the incredibly strong job growth figures churned out month after month in recent years."
Rounding out the domestic data, Canadian new home prices rose 0.1 percent in October from September, the 14th straight month of either slowing or steady price growth, Statistics Canada said.
Canadian bond prices tilted lower along with the larger U.S. Treasury market as the strong U.S. data were seen as reducing the chances of further interest rate cuts by the U.S. Federal Reserve.
While the bulk of the move in the bond market can be attributed to the U.S. data, the Canadian manufacturing numbers also helped lessen demand for safe haven government debt, said Mark Chandler, fixed income strategist at RBC Capital Markets.
"It's obviously not all a bed of roses for manufacturers out there, but it's good to see that shipments are doing a little bit better than expected."
The overnight Canadian Libor rate was at 4.2500 percent, unchanged from Wednesday.
Wednesday's CORRA rate was 4.2673 percent, down from 4.2776 percent.
The two-year bond fell 15 Canadian cents to C$100.72 to yield 3.865 percent. The 10-year bond slid 45 Canadian cents to C$99.38 to yield 4.079 percent.
The yield spread between the two-year and 10-year bond moved to 21.6 basis points from 24.5 at the previous close.
The 30-year bond declined 58 Canadian cents to C$113.93 to yield 4.174 percent. In the United States, the 30-year Treasury yielded 4.591 percent.
The three-month when-issued T-bill yielded 3.91 percent, up from 3.89 percent at the previous close.
Reporting by John McCrank; Editing by Peter Galloway