TORONTO (Reuters) - The Canadian dollar weakened against U.S. dollar on Thursday, giving back all its gains from the previous day as oil prices fell and the greenback rallied.
Domestic bond prices, with no Canadian data to influence a move, rallied on a safe-haven bid as equity markets suffered steep losses.
The Canadian currency ended the North American session at C$1.0695 to the U.S. dollar, or 93.50 U.S. cents, down from C$1.0610 to the U.S. dollar, or 94.25 U.S. cents, at Wednesday’s close.
The currency started the session on a positive note, rising to C$1.0542, or 94.86 U.S. cents, as the price of U.S. crude jumped ahead of weekly U.S. inventory data.
But oil prices fell as concerns about weakening demand due to softening global growth overshadowed the inventory report, which showed a surprise drawdown in weekly U.S. crude stocks.
With Canada a major energy producer and exporter, the currency is often strongly influence by oil price movements.
Shaun Osborne, chief currency strategist at TD Securities, said the weaker Canadian dollar was largely the result of a rallying greenback.
“There are a fair amount of people out there who are not involved in this U.S. dollar rally at the moment but want to be, so that’s going to provide, I think, a natural source of demand for the (U.S.) dollar on any decent pullback that we get,” he said.
One such pullback happened on Wednesday after the Bank of Canada held its key lending rate steady at 3 percent and signaled it was not about to cut rates any time soon.
That caused the Canadian dollar to rally against the U.S. dollar, giving investors an attractive buy-in price to purchase greenbacks.
Osborne said he wouldn’t be surprised if the Canadian dollar weakened to the C$1.750 area, or around 93.02 U.S. cents, by Monday, depending on upcoming data.
Job reports for August in both Canada and the United States are due Friday.
The domestic numbers are expected to show Canada created 8,000 jobs and had an unemployment rate of 6.2 percent, up from 6.1 percent.
Last month, the employment report for July showed an unexpected loss of 55,000 jobs, the biggest monthly toll since the recession in 1991. The Canadian dollar lost 1.3 percent that day.
Bond prices rose on a safe-haven bid as North American stock markets suffered big losses.
“There are more concerns on the financial side in the U.S. and the pressures there are reflected in the equity markets,” said Mark Chandler, fixed income strategist at RBC Capital Markets.
Chandler said that U.S. data contributed to the pessimistic mood, with three U.S. labor indicators pointing to a soft market.
The two-year bond rose 4 Canadian cent to C$110.11 to yield 2.698 percent, while the 10-year gained 25 Canadian cents to C$106.55 to yield 3.451 percent.
The yield spread between the two-year and 10-year bond was 77.0 basis points, up from 75.1 basis points at the previous close.
The 30-year bond gained 69 Canadian cents to C$117.89 for a yield of 3.952 percent. In the United States, the 30-year treasury yielded 4.269 percent.
The three-month when-issued T-bill yielded 2.43 percent, down from 2.48 percent at the previous close.
Editing by Rob Wilson