4 Min Read
* C$ falls to $1.0515
* Underperforms other commodity-linked currencies
* Markets wary of uncertainty as NDP surges in polls
* Bonds follow Treasuries higher
By Claire Sibonney
TORONTO, April 28 (Reuters) - The Canadian dollar was down slightly against its U.S. counterpart on Thursday as support from the greenback's broadbased slide was offset by concern about the spillover effect of a slower U.S. recovery.
The U.S. dollar plumbed a three-year low against a basket of currencies a day after the U.S. Federal Reserve signaled it would prolong its ultra-loose monetary policy. [FRX/]
Concern about the U.S. recovery was reinforced by data on Thursday that showed U.S. GDP growth fell to 1.8 percent annual rate in the first quarter of 2011 after a 3.1 percent fourth quarter rise. U.S. jobless claims jumped in the latest week.
"Part of it is the fact that the U.S. recovery is on track, but it's not a strong recovery," said Charles St-Arnaud, Canadian economist and currency strategist at Nomura Securities International in New York.
At 8:54 a.m. (1254 GMT), the Canadian dollar CAD=D4 stood at C$0.9510 to the U.S. dollar, or $1.0515, weakening from Wednesday's North American finish at C$0.9504 the U.S. dollar, or $1.0522. Earlier, it hit C$0.9465, or $1.0565, it's strongest level since April 21, when the currency reached a 3-1/2 year high.
St-Arnaud noted that the Canadian dollar hasn't appreciated as much recently as other commodity-linked currencies.
The Canadian dollar is still facing the headwind of uncertainty over the May 2 federal election, with support for the left-leaning New Democrats unexpectedly surging. [ID:N29210714]
A poll on Wednesday showed support for the second place NDP topping 30 percent and closing in on the Conservatives' lead. [ID:nN28228823]
Analysts warned big gains for the party could trigger a knee-jerk drop in the currency and Canadian equity markets as investors fret about NDP plans to raise corporate taxes, spend more and redo energy policy. [ID:nN27126329]
While the NDP are perceived to be less business-friendly, St-Arnaud noted its programs are not vastly different and suggested the party's popularity in Quebec over the separatist Bloc Quebecois could also be seen as a positive for international investors wary of another referendum.
"The election talk is creating noise more than anything else," said St-Arnaud.
He also noted interest rate differentials between Canada and the United States will continue to be supportive.
The U.S. central bank is lagging other countries in tightening its monetary policy. The Bank of Canada is widely expected to resume raising interest rates as early as this summer. [CA/POLL]
Higher interest rates often support currencies because they tend to attract international capital flows.
Canadian bond prices rose across the curve, mimicking U.S. Treasuries following the tepid U.S. GDP data. [US/]
The two-year bond CA2YT=RR was up 7 Canadian cents to yield 1.743 percent, while the 10-year bond CA10YT=RR gained 24 Canadian cents to yield 3.244 percent. (Editing by Jeffrey Hodgson)