July 18, 2008 / 1:54 PM / in 9 years

Loonie rises on firm data, bonds sag

<p>A Canadian one dollar coin, also know as a loonie, is shown in Montreal in this April 28, 2006 file photo.Shaun Best</p>

TORONTO (Reuters) - The Canadian dollar was higher against the U.S. dollar on Friday morning after Canadian wholesale trade data for May came in stronger than expected, helping boost confidence in the economy.

Bond prices fell in response to firmer equities markets and the solid data.

At 9:34 a.m., the Canadian dollar was at C$1.0030 to the U.S. dollar, or 99.70 U.S. cents, up from C$1.0068 to the U.S. dollar, or 99.32 U.S. cents, at Thursday's close.

The currency spent the overnight session in a narrow range of C$1.0037 and C$1.0057, then rose on the back of the data.

"I think the wholesale number was quite a strong number and suggests the economy continues to move along quite well here," said Shaun Osborne, chief currency strategist at TD Securities.

Statistics Canada said Canadian wholesale trade jumped 1.6 percent in May from April, thanks to higher global demand for fertilizer. It was the biggest monthly increase since January, with only the auto sector posting a contraction. Excluding autos, wholesale sales were up 2.2 percent.

The median forecast by analysts surveyed by Reuters was for a 0.5 percent monthly gain.

Other data showed that Canada's composite leading index was unchanged in June, following two months of gains, as weakness in housing and new orders for factory goods offset strong consumer spending.

Looking at the prospects for the Canadian dollar going forward, Osborne said there is a risk of the currency weakening against the U.S. dollar. The greenback has been helped by a more than $15 dollar a barrel drop in the price of oil this week.

"Oil prices are still looking relatively soft and over the next little while, I think there is there is a possibility that we trade up to the C$1.01 area," he said.

High oil prices were seen hurting growth and strengthening inflation in the world's biggest economy.

BOND PRICES SAG

Bond prices, which have been under pressure the past few days, continued their slide lower as firmer North American stock markets cut into the safe-haven bid for government debt.

The wholesale trade data added to the pressure on Canadian bonds, said Doug Porter, deputy chief economist at BMO Capital Markets.

"Overall, the main impression from these numbers is that the economy probably turned out a little more growth in May and stayed on the plus side of the column in the second quarter."

The two-year bond fell 4 Canadian cents to C$101.12 to yield 3.126 percent. The 10-year bond slid 17 Canadian cents to C$103.70 to yield 3.796 percent.

The yield spread between the two-year and 10-year bond was 67.3 basis points, up from 65.7 basis points.

The 30-year bond lost 30 Canadian cents to C$114.05 for a yield of 4.159 percent. In the United States, the 30-year treasury yielded 4.634 percent.

The three-month when-issued T-bill yielded 2.33 percent, down from 2.37 percent at the previous close.

Editing by Peter Galloway

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