TORONTO (Reuters) - The Canadian dollar rose against the U.S. dollar on Wednesday as upbeat domestic economic data offered support, but its move was limited ahead of the more important jobs report due on Friday.
Domestic bond prices fell across the curve and gave back a slice of the gains made during the previous session when North American equity markets tumbled as investors checked out of riskier investments.
The Canadian dollar closed at C$1.0061 to the U.S. dollar, or 99.39 U.S. cents, up slightly from up from C$1.0072 to the U.S. dollar, or 99.29 U.S. cents at Tuesday’s close.
Early in the session the currency reached its highest level in just over a week when it hit C$1.0006 to the U.S. dollar, or 99.94 U.S. cents, after domestic data topped forecasts.
The Ivey Purchasing Managers Index, which looks at Canadian business and government spending, rose unexpectedly in January, while Canadian building permits beat estimates in December and reached a record level for all of 2007.
But the Canadian dollar was unable to pop back above the greenback and eventually gave back most of the early gains as investors were unable to dismiss the nagging concerns surrounding the U.S. economy.
“There’s so much bad news priced into the U.S. economy and so many concerns over when that’s going to spill into Canada rather than if,” said Steve Butler, director of foreign exchange trading at Scotia Capital.
“We should be in a feel good mood today but I think we’re just going to be slightly underperforming because of all the worries about what’s happening in the U.S.”
Butler also said he does not anticipate much upside for the Canadian dollar, especially ahead of the more key Canadian job and housing figures that will be released on Friday.
Analysts, on average, are expecting an increase of 10,000 jobs and an unemployment rate of 6 percent.
In December, the Canadian economy shed fewer jobs than previously thought, but the number was still more than the market had been expecting.
The number of jobs lost in December was revised to 2,900 from an earlier reading of 18,700, according to seasonally adjusted figures released by Statistics Canada. Analysts had forecast a gain of 15,000 for the period.
A Reuters poll of foreign-exchange strategists released on Wednesday showed the Canadian dollar is expected to fall steadily against the U.S. dollar this year as commodity prices ease and merger-related interest dries up.
Canadian bond prices fell as the latest domestic data left investors with less of an appetite for the security offered by government debt.
It marked a turnaround from Tuesday’s session when weak U.S. Institute for Supply Management data ramped up recession fears and sent investors out of risky investments like stocks in favor of bonds.
But the slide in bond prices was contained ahead of the jobs data due later in the week.
“I would think the markets are waiting for that (jobs) report before they place big bets,” said Sal Guatieri, senior economist at BMO Capital Markets.
The two-year bond fell 3 Canadian cents to C$102.10 to yield 3.046 percent. The 10-year bond slipped 25 Canadian cents to C$101.60 to yield 3.793 percent.
The yield spread between the two- and 10-year bond was 74.7 basis points, up from 68.8 points at the previous close.
The 30-year bond fell 75 Canadian cents to C$114.30 to yield 4.151 percent. In the United States, the 30-year treasury yielded 4.368 percent.
The three-month when-issued T-bill yielded 3.28 percent, down from 3.35 percent at the previous close.
Editing by Janet Guttsman