CANADA FX DEBT-C$ hits 6-week low, bonds mixed after US data

Tue Jun 30, 2009 5:40pm EDT
 
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 * C$ hits six-week low at 85.91 US cents
 * Ends month 6 percent lower
 * 9th month of decline for Canada GDP hits sentiment
 * Canadian market shut on Wednesday for Canada Day holiday
 (Adds details)
 By Ka Yan Ng
 TORONTO, June 30 (Reuters) - The Canadian dollar fell
against the U.S. currency on Tuesday as lower U.S. consumer
confidence data for June dampened hopes for an early economic
recovery, and pushed the market toward safer havens.
 The Conference Board's U.S. consumer confidence index fell
in June to 49.3 from a downwardly revised 54.8 in May, compared
with forecasts for a reading of 55.0.
 The data followed a smaller-than-expected slip in U.S. home
prices in April and a Chicago purchasing managers' report on
business activity that showed some improvement from May, but
still pointed to a weak economy. See [ID:nN30517712]
 Overall, the greenback drew favor from the unexpected drop
in consumer confidence, pushing the Canadian dollar as low as
C$1.1640, its lowest level since May 19.
 The currency finished at C$1.1630 to the U.S. dollar, or
85.98 U.S. cents, down from C$1.1567 to the U.S. dollar, or
86.45 U.S. cents, at Monday's close.
 "Its weakness today is very much reflected in the overall
U.S.-dollar strength story," said Jack Spitz, managing director
of foreign exchange at National Bank Financial.
 Canadian data that showed the economy shrank for the ninth
straight month in April initially drew little reaction for the
currency but underscored how delicate the world economic
rebound can be.
 Gross domestic product fell 0.1 percent in April compared
with March, Statistics Canada said. The result was in line with
the median forecast in a Reuters poll but still a downbeat
start to the second quarter, in which most economists expect
the pace of decline to slow. [ID:nN30434455].
 "I think the data is still consistent with the view that
the first quarter represents the worst in terms of declining
activity. But with declines still looking like they're going to
continue through the second quarter, it will keep the Bank of
Canada wary," said Paul Ferley, assistant chief economist at
Royal Bank of Canada.
 "As a result, it still probably argues for the central bank
to stay true to their commitment of maintaining the overnight
rate at current very accommodative levels at 0.25 percent
through the middle of next year."
  The Canadian dollar ended June down about 6 percent after
it notched a 9.3 percent gain in May -- its biggest monthly
gain since at least October 1950.
 "I still think that the market overall is going to, over
time, be bid for the Canadian dollar. The bid to commodity
prices...and a higher bias leaning towards risk and risk-type
currencies will over time influence more bids to the Canadian
dollar," Spitz said.
 BONDS MIXED
 Canadian bond prices were mixed. The drop in U.S. consumer
confidence shored up long-term bonds, but better-than-expected
U.S. home price data pressured short-term bonds.
 The benchmark two-year government bond dipped 1 Canadian
cent to C$100.08 to yield 1.207 percent, while the 10-year bond
rose 30 Canadian cents to C$103.25 to yield 3.361 percent.
 The 30-year bond gained 70 Canadian cents to C$119.45 to
yield 3.856 percent. The comparable U.S. issue yielded 4.332
percent.
 Canadian bonds outperformed U.S. Treasuries across the
curve. The Canadian 30-year bond was 47.6 basis points below
the U.S. 30-year yield, compared with 39.3 basis points on
Monday.
 Canadian markets are shut on Wednesday for Canada Day,
while U.S. markets will be closed on Friday, which may lead to
wider swings in currency and bond markets.
 (Editing by Peter Galloway)