July 24, 2008 / 9:18 PM / 9 years ago

Loonie slides against stronger greenback

<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 fell 0.3 percent against a stronger U.S. dollar on Thursday, as weak data out of Europe had investors buying greenbacks, with a sharp drop in equities adding to the negative atmosphere.

Domestic bond prices rallied on a flight to safety, partly due to the steep losses on stock markets as well as on weak U.S. economic data.

The Canadian currency closed at C$1.0133 to the U.S. dollar, or 98.69 U.S. cents, down from C$1.0103 to the U.S. dollar, or 98.98 U.S. cents, on Wednesday.

The currency is down 0.7 percent against the greenback so far this week.

"Most of the Canadian dollar weakness you've seen has really been in sympathy with other currencies, such as the euro and the Australian dollar, weakening off over the last two or three days as well," said Shane Enright, currency strategist at CIBC World Markets.

Rafts of data out of Europe have shown a softening economic performance, which has cooled expectations of higher interest rates there and taken the steam out of the euro.

"The U.S. dollar sort of took its licks early in the cycle," because of weak economic numbers, Enright said. He added that other countries were now "getting deteriorating data, so you're starting to see them get punished."

Also hurting the Canadian currency was a decline of over 300 points on Toronto Stock Exchange, driven by worries over the U.S. economic outlook, which prompted investors to cash in profits on financial stocks.

BONDS RALLY

Canadian bond prices rallied as the weak equities and soft U.S. housing and employment numbers drove up the safe-haven bid for government debt.

"(The U.S. data) was sufficiently negative that the U.S. market is absolutely screaming higher in price and the Canadian market is making a pretty big play as well," said Eric Lascelles, chief economics and rates specialist at TD Securities.

Data showed the pace of U.S. existing home sales fell 2.6 percent, while the sales volume hit a 10-year low. As well, initial claims for U.S. state unemployment insurance rose to their highest reading since March.

"Those sorts of outlooks are pretty grim stuff," Lascelles said.

There is no major Canadian data due until Wednesday.

The two-year bond rose 16 Canadian cents to C$101.11 to yield 3.123 percent. The 10-year bond climbed 50 Canadian cents to C$103.75 to yield 3.789 percent.

The yield spread between the two-year and 10-year bond was 66.6 basis points, up from 63.1 basis points.

The 30-year bond added 65 Canadian cents to C$114.70 for a yield of 4.123 percent. In the United States, the 30-year treasury yielded 4.611 percent.

The three-month when-issued T-bill yielded 2.48 percent, unchanged from the previous close.

Editing by Rob Wilson

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