C$ slips as bad economic news trumps Potash bid

Thu Aug 19, 2010 4:41pm EDT
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By Claire Sibonney

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.   Continued...