TORONTO (Reuters) - The Canadian dollar closed more than a penny weaker against the greenback on Thursday, after unexpectedly soft North American economic data overshadowed the positive impact of this week’s takeover bid for Canada’s Potash Corp.
Riskier assets such as stocks, commodities and commodity-related currencies all fell on news that U.S. jobless claims scaled a nine-month high last week and Mid-Atlantic factory activity contracted in August for the first time in more than a year.
In Canada, worse than foreseen wholesale trade and leading indicator figures added to worries that the economy is slowing, pressured by a cooling housing sector.
“The Canadian dollar is pretty much flat on the week even though we’ve had what could potentially be the largest M&A inflow to Canada in history announced,” said David Watt, senior currency strategist at RBC Capital Markets.
“Our largest trading partner continues to look like it’s going through at least a moderate soft patch if not heading deeper back into recession and ... the Canadian economy, while we were rocking and rolling in Q3 2009 to Q2 of this year, we seem to be stumbling backwards.”
Anglo-Australian BHP Billiton, the world’s biggest miner, this week embarked on a $39 billion hostile takeover bid for Potash Corp, the world’s biggest fertilizer producer.
Investors anticipate bids higher than BHP’s $130-a-share offer as Potash stock has since surged above that price and BHP has arranged a syndicated loan of $45 billion.
Charles St-Arnaud, Canadian economist and currency strategist at Nomura International in New York, said BHP’s bid has already been priced into the currency after the Canadian dollar’s two-day rally.
“If the deal is revised, there could probably be more upside,” he said, adding that the strong outlook for commodities such as wheat and corn and rebounding demand for the crop nutrient suggests a higher offer.
The financing of the deal, even if paid out in U.S. dollars, would still support the Canadian dollar as a sizable amount could be expected to be converted into the currency by Canadian shareholders, St-Arnaud added.
Other multi-billion-dollar deals, specifically in the energy sector, are anticipated by many in the market.
However, Watt cautioned, “M&A inflows, even excessively large ones, don’t necessarily have enough of a force to offset global economic realities.”
The Canadian dollar closed the North American session at C$1.0399 to the U.S. dollar or 96.16 U.S. cents, down sharply from C$1.0287 to the U.S. dollar, or 97.21 U.S. cents, at Wednesday’s close. Earlier, it touched C$1.0416 to the U.S. dollar, or 96.01 cents.
On Friday, the market will be focused on Canadian inflation data for July, figures that will help the Bank of Canada determine monetary policy at its next rate-setting announcement September 8 and for the remainder of the year.
The market is roughly split on whether the central bank will raise its key rate in September or pass after two increases since the beginning of June.
Canada’s government bond prices were firmer after the weak economic data as investors fled riskier assets, pouring back into safe-haven government debt.
Canada’s two-year bond rose 4 Canadian cents to yield 1.363 percent, while the 10-year bond gained 21 Canadian cents to yield 2.914 percent.
Reporting by Claire Sibonney; Editing by Jeffrey Hodgson