November 17, 2010 / 9:58 PM / 7 years ago

CANADA FX DEBT-C$ ends slightly lower as U.S. data drags

* C$ slides to 97.63 U.S. cents

* Rebounds from near three-week low

* Bond prices mixed (Updates to close, adds commentary)

By Claire Sibonney

TORONTO, Nov 17 (Reuters) - Canada’s dollar ended lower against the greenback on Wednesday, weighed down by weak U.S. economic data, though it recovered from close to a three-week low sparked by a sharp drop in oil prices.

U.S. core consumer inflation touched a record low in October and new home building sagged, lending support to the Federal Reserve’s move to boost the sluggish U.S. economy through additional monetary easing. [ID:nN17190977]

The data pressured both the U.S. and Canadian dollars against the rest of the G10 currencies.

“It was more CAD trading in a very tight range with the U.S. dollar, and the U.S. dollar losing against most of the other G10 currencies, that dragged Canada down against those currencies as well,” said Matthew Strauss, senior currency strategist at RBC Capital Markets.

“Part of the reason the U.S. dollar softened slightly was ... disappointing data, whether you’re looking housing starts, permits, inflation. And that put the North American currencies on the defensive.”

Sovereign debt worries in Europe were less of an immediate drag, noted Strauss.

The Canadian dollar CAD=D4 closed the North American session at C$1.0243 to the U.S. dollar, or 97.63 U.S. cents, down slightly from C$1.0222 to the U.S. dollar, or 97.83 U.S. cents at Tuesday’s close.

Overnight, the currency fell to C$1.0260 to the U.S. dollar, or 97.47 U.S. cents, its weakest level since Oct. 28, as London equity futures declined and oil prices fell steeply on renewed worries that China may increase interest rates to stave off inflation, cutting demand for commodities. [O/R]

But in the North American session, Strauss said the Canadian currency managed to hold its own against the greenback. It even managed to strengthen as high as C$1.0180 against the U.S. dollar, or 98.23 cents, despite a sharp drop in oil prices. [O/R]

To illustrate this he pointed out the Norwegian krona, the currency of the G10’s other major oil producer, was a top performer on the crosses.

“So it seems that the fall in the oil price played almost no role in CAD’s performance today,” said Strauss.

The session saw a decided break of a key U.S. dollar resistance level of C$1.0157, which then turned into a support level. Strauss said traders are waiting for confirmation of a new resistance level for the U.S. currency at C$1.0247, which it tested briefly. Beyond there, C$1.0350 represents the next major barrier.

BONDS PRICES MUTED

Canadian government bond prices were mixed across the curve, also lacking significant direction.

The two-year bond CA2YT=RR was up 3 Canadian cents to yield 1.583 percent, while the 10-year bond CA10YT=RR slipped 11 Canadian cents to yield 3.109 percent.

On the long end, Canada’s auction of 30-year bonds met with the strongest demand in at least two decades as investors, fearing economic uncertainty, flocked to the safety and relatively decent value of long-term government debt. [ID:nN17204458]

“There continues to be a lot of demand for long duration assets. And, although the long end of our curve has flattened a bit in the past few weeks, it’s still relatively steep,” said Roger Quick, director of fixed income research at Scotia Capital.

“I‘m surprised the overall market isn’t stronger ... given very weak data today.” (Additional reporting by Ka Yan Ng; editing by Rob Wilson)

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