March 27, 2008 / 1:29 PM / 9 years ago

Canadian dollar edges lower on U.S. economic concern

4 Min Read

TORONTO, March 27 (Reuters) - The Canadian dollar was down slightly versus the U.S. dollar on Thursday as nagging concerns about what impact a U.S. economic slowdown could have on the domestic economy overshadowed the benefit of lofty commodity prices.

Domestic bonds prices had no Canadian data to consider but were pinned lower across the curve after a U.S. jobless claims report gave dealers an excuse to book profits.

At 9:10 a.m. (1310 GMT), the Canadian unit was at C$1.0195 to the U.S. dollar, or 98.09 U.S. cents, down from C$1.0188 to the U.S. dollar, or 98.15 U.S. cents, at Wednesday's close.

The slide in the Canadian dollar pulled it further from the one-week high of C$1.0095 to the U.S. dollar, or 99.05 U.S. cents, that it reached on Wednesday.

And with no domestic data due until next week to offer investors further proof of the resilient economy in the wake of the slowdown in the United States, the Canadian currency could likely be in for further selling.

"The Canadian dollar weakness comes despite stable economics and a rise in commodities as the threat of an economic spillover from the (United) States continues to weigh on the loonie," said Jack Spitz, director of foreign exchange at National Bank Financial.

"Canada has been showing decent numbers and we don't really see any real evidence of economic weakness in Canada, but markets continue to believe the pain will be felt eventually."

The Canadian economy relies heavily on the United States for consuming the bulk of its exports, so a slowdown in the world's largest economy is expected by many to eventually work its way into Canada.

But the domestic economy has shown plenty of resiliency so far in 2008 as a slew of data has topped of expectations, with a retail sales report for January earlier this week the latest piece of evidence.

Canada's economic calendar is bare until the January gross domestic product report, due on Monday. Market focus next week will be on the March jobs report due April 4.

A rise in oil prices to above $107 a barrel after an Iran pipeline explosion helped cushion the commodity-linked Canadian dollar's fall. Gold prices turned lower after earlier rising to a one-week high.

Bonds Stuck Lower

Canadian bond prices were stuck lower as investors decided to pocket some recent gains as the latest U.S. economic data showed layoff trends jumped to levels not seen since 2005.

With no Canadian data to consider, dealers were influenced by the report that showed the four-week moving average of new claims in the United States rose to its highest since Oct. 22, 2005, which was in the aftermath of Hurricane Katrina.

"I just suspect the market is looking for an excuse to sell a little bit and Canada is going along for the ride right now," said Michael Gregory, senior economist at BMO Capital Markets.

The overnight Canadian Libor rate LIBOR01 was 3.7617 percent, up from 3.7200 percent on Wednesday.

Wednesday's CORRA rate CORRA= was 3.4420 percent, down from 3.4784 on Tuesday. The Bank of Canada publishes the previous day's rate at around 9 a.m. daily.

The two-year bond was down 2 Canadian cents at C$102.66 to yield 2.605 percent. The 10-year bond shed 25 Canadian cents to C$103.98 to yield 3.489 percent.

The yield spread between the two- and 10-year bonds was 88.5 basis points, up from 84.4 points at the previous close.

The 30-year bond dropped 72 Canadian cents to C$117.20 to yield 3.996 percent. In the United States, the 30-year Treasury yielded 4.398 percent.

The three-month when-issued T-bill yielded 1.75 percent, down from 1.77 percent at the previous close. (Editing by Renato Andrade)

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