Canada dollar follows oil higher after early hiccup

Thu May 15, 2008 9:55am EDT
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar rose above parity versus the U.S. dollar on Thursday as lofty oil prices helped it recover losses suffered after weak manufacturing sales data supported calls for more Bank of Canada rate cuts.

Domestic bond prices were sitting higher across the curve as the latest domestic economic data showed the weakening U.S. economy is having an impact on Canada.

At 9:30 a.m. EDT, the Canadian currency was at US$1.0001, valuing a U.S. dollar at 99.99 Canadian cents, up from C$1.0043 to the U.S. dollar, or 99.57 U.S. cents, at Wednesday's close.

The Canadian currency fell as low as C$1.0025 to the U.S. dollar, or 99.75 U.S. cents, after the data was released, but it slowly crept back and hit US$1.0008, valuing a U.S. dollar at 99.92 Canadian cents.

The ailing U.S. economy and an ongoing slump in the auto industry were blamed for the unexpectedly sharp 1.6 percent drop in Canadian manufacturing sales in March after two months of gains. Analysts were looking for a 0.2 percent rise.

According to Eric Lascelles, chief economics and rates strategist at TD Securities, the manufacturing sales report makes the Bank of Canada's assumption of 1 percent growth in the first quarter too rosy.

"It doesn't look like the economy is going to quite hit that based on this number and in turn I think you can make a pretty good case for not just more Bank of Canada rate cutting but a fair bit more," said Lascelles.

"It really is coming through that Canada is being quite exposed to this U.S. slowdown... this was not a particularly friendly or healthy report in Canada."   Continued...