January 22, 2009 / 4:45 PM / 9 years ago

CANADA FX DEBT-Falling oil, economic data hit C$

* C$ drops as price of oil retreats to around $41 a barrel

* Big drop in Nov retail sales pressures market

* BoC forecast of deep, short recession has little impact

(Adds details, quote)

By Jennifer Kwan

TORONTO, Jan 22 (Reuters) - The Canadian dollar weakened against the U.S. currency on Thursday as the price of oil retreated and reports in both Canada and the United States deepened the economic gloom.

At 10:55 a.m. (1555 GMT), the currency was at C$1.2620 to the U.S. dollar, or 79.24 U.S. cents, down from C$1.2558 to the U.S. dollar, or 79.63 U.S. cents, on Wednesday.

The currency was pressured by a string of economic data released on Thursday, notably worse-than-expected Canadian retail sales data in November [ID:nN22], said David Watt, senior currency strategist RBC Capital Markets.

In the United States, figures showed that weekly jobless claims rose more than expected, while housing starts and permits fell to a record low in December. [ID:nN22528164]

Following the release of the data, the dollar hit a low of C$1.2741 to the U.S. dollar, or 78.49 U.S. cents.

Altogether, the data reminded people of the “cold hard facts” of the current economic downturn, Watt said.

“It’s a bad environment for any cyclical sensitive currency,” he said.

The Bank of Canada said on Thursday the economy will contract by an exceptionally sharp 4.8 percent in the first quarter of this year and continue to shrink through mid-year, but that recovery will be swifter than in the past two recessions. [ID:nN22537605]

The report did not have any notable immediate impact on the Canadian currency.

The price of oil CLc1, which fell to below $41 a barrel, also helped to pressure the currency, given Canada’s position as a major energy producer and exporter.

Prices for gold and base metals also weakened with economic data from China adding to the sullen demand outlook. [ID:nSP223646]

The drop in the Canadian dollar came after it ended stronger on Wednesday, rallying from a six-week low against the U.S. currency, boosted by a rise in oil and as investors returned to riskier assets.

“Most of the shoes have dropped in the States right now or at least most of the shoes have dropped in North America,” said Andrew Pyle, wealth advisor at Scotia McLeod.

“We know what’s happening to the consumer, we know what’s happening to employment. There are few negative surprises left at least from a North American point of view.”

BONDS TURN LOWER

Most Canadian government bond prices followed the U.S. Treasury market lower. [ID:nN22534628] Earlier, bond prices were higher as money flowed out of equities and into safer havens.

“Pure and simple it’s weak data on both sides of the border,” Pyle said.

The two-year bond edged 1 Canadian cent higher to C$103.05 to yield 1.077 percent, while the 10-year bond fell 5 Canadian cents to C$112.35 to yield 2.743 percent.

The 30-year bond dropped 50 Canadian cents to yield 3.646 percent. In the United States, the 30-year treasury yielded 3.2395 percent. (Editing by Peter Galloway)

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