May 16, 2012 / 2:28 PM / in 6 years

Canadian dollar cuts losses on North American economic data

TORONTO (Reuters) - (Repeats to additional subscribers with no change to headline or text) Canada’s dollar rebounded from a 16-week low against the U.S. dollar on Wednesday, lifted by better-than-expected North American data, but broader fears of a worsening debt crisis capped the rise of the risk-linked currency

The Canadian dollar rose to a session high of C$1.0053 against the greenback, or 99.47 U.S. cents, after data showed U.S. housing starts climbed more than expected in April, signaling a nascent housing recovery.

“The (U.S.) housing starts are encouraging,” said Derek Holt, vice president of economics at Scotiabank.

“We’ve seen a gradual healing over the course of the past year that has the potential to be sustained over the next year.”

Canadian data showed manufacturing sales breezed past expectations in March from February, allaying concerns that domestic manufacturing was in a “prolonged slump,” said Holt.

By around 9:30 a.m. (1330 GMT), the Canadian dollar stood at C$1.0082 versus the U.S. dollar, or 99.19 U.S. cents, still slightly below Tuesday’s North American session close at $1.0068 versus the U.S. dollar, or 99.32 U.S. cents.

Still, markets were largely guided by worries about the euro zone. Fears that a Greek exit from the euro zone will worsen the debt crisis facing other European nations gripped financial markets on Wednesday.

A Greek departure from the euro zone would have a potentially huge knock-on effect on struggling economies such as Italy and Spain, whose bond yields climbed above the crucial 6 percent mark in the previous session.

“The problems in Europe are certainly escalating and causing a lot of stress in the markets and I think the Canadian dollar will unfortunately be sideswiped,” said Blake Jespersen, managing director of foreign exchange sales at BMO Capital markets.

Overnight, the currency slipped as far as C$1.0131, or 98.71 U.S. cents, its weakest level since January 25.

Over the next month, Jespersen said the Canadian dollar could tumble as far as C$1.03.

“The Greek election isn’t until June 17 so the markets have to wait a month for that unless we get some kind of ECB bailout between now and then. I think the problems in Europe could continue to escalate and it is causing a flight to quality,” he said.

“I think it’s only a matter of time that our dollar will start to play a little bit of catch-up with the selloff in other asset classes.”

Canadian bond prices moved lower across the curve. The two-year government bond was down 6 Canadian cents to yield 1.319 percent, while Canada’s 10-year bond lost 23 Canadian cents to yield 1.961 percent.

(Additional reporting by Claire Sibonney; Editing by Theodore d‘Afflisio)

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