5 Min Read
* Ends at C$1.0514 to the US$, or 95.11 US cents
* White House bank plan weighs on North American markets
* Bank of Canada paints brighter growth picture
* Bond prices slightly higher (Updates to close, quote)
By Jennifer Kwan
TORONTO, Jan 21 (Reuters) - The Canadian dollar retreated against the U.S. currency on Thursday as commodity prices dropped and North American stock markets slid after U.S. President Barack Obama proposed new risk rules for banks.
U.S. stocks, typically a barometer of risk appetite, dropped as the president proposed stricter limits on financial institutions' risk-taking in a new populist-tinged move that rattled markets. [.N] [ID:nN21115923]
That added to already bruised investor sentiment after strong Chinese growth data fueled concerns over possible monetary tightening in the giant Asian economy, said David Watt, senior currency strategist at RBC Capital Markets. [ID:nTOE60K011]
That China might step on the brakes a little more aggressively invoked fears that one of the few bright lights in the global economic recovery may dim, said Watt.
The Canadian dollar ended at C$1.0514 to the U.S. dollar, or 95.11 U.S. cents, down from Wednesday's finish of C$1.0470 to the U.S. dollar, or 95.51 U.S. cents.
The currency hit a low of C$1.0525, or 95.01 U.S. cents, during the session, hurt by broad U.S. dollar strength.
Watt added that a Bank of Canada report that painted a slightly rosier inflation and growth picture may have helped to stem potentially steeper losses.
In its Monetary Policy Report, the central bank raised its economic growth projection for the final three quarters of this year and forecast inflation throughout 2010 would be higher than it had expected. [ID:nBAC002364]
"They did talk favorably about global growth and favorably about the outlook for commodity prices ... I think that limited any (Canadian dollar) sell-off, even though we had all that carnage with stock markets. The Canadian dollar managed to hold its own," said Watt.
Camilla Sutton, a currency strategist at Scotia Capital, said the currency's moves after the report were fairly muted as it largely repeated Tuesday's message from the central bank, when it announced it would keep rates steady.
"The report was very neutral. It was very much in line with the commentary we heard on Tuesday. They'd already given us some insight on growth changes so we just have that now firmed up," she said.
After the Monetary Policy Report's release, Governor Mark Carney said the Canadian economy was on track to recover this year and the outlook has improved since October. He repeated the bank's pledge to keep interest rates at current levels until the end of June as long as inflation remains in check, but declined to forecast rates beyond June. [ID:nN21189595]
The price of oil, a key Canadian export, dropped more than 2 percent to a 2010 low around $76 a barrel after U.S. data fueled demand concerns, while gold prices also dropped. [O/R] [GOL/] Both commodities exert a strong influence on the Canadian dollar.
Government bond prices were firmer, mirroring moves in the influential U.S. Treasury market where debt prices rose as stocks tumbled and money flowed to less risky assets. [US/]
"Part of that is related to risk. U.S. Treasury market yields are down and prices are up pretty solidly. Canada is following that a little," said Michael Gregory, senior economist at BMO Capital Markets.
The two-year bond CA2YT=RR was largely unchanged, up 4 Canadian cents at C$100.12 to yield 1.187 percent. The 30-year bond CA30YT=RR climbed 28 Canadian cents to C$116.55 to yield 3.999 percent.
Canadian bonds mostly underperformed U.S. notes across the curve. The Canadian 2-year bond was 35 basis points above the U.S. 2-year yield, compared with about 32 basis points in the previous session. (Editing by Rob Wilson)