TORONTO (Reuters) - The Canadian dollar climbed against the U.S. dollar on Tuesday as economic data which showed an unexpected drop in domestic building permits also included an upward revision for the previous month.
Domestic bond prices rose across the curve as weak earnings out of the United States underscored the troubles in the U.S. housing and credit markets, which boosted the appeal of secure assets like government debt.
At 9:20 a.m. EDT, the Canadian unit was at C$1.0125 to the U.S. dollar, or 98.77 U.S. cents, up from C$1.0135 to the U.S. dollar, or 98.67 U.S. cents, at Monday’s close.
The Canadian dollar slipped to C$1.0140 to the U.S. dollar, or 98.62 U.S. cents, right after data showed Canadian building permits fell 4.5 percent in March from February, compared to market expectations for a 1.4 percent gain.
But the currency quickly rebounded as the data also showed an upward revision of February building permits to a gain of 0.8 percent, compared to an earlier reported 1-percent drop.
“Initially there was a bit of a negative reaction but I am not surprised there was no follow through,” said Matthew Strauss, senior currency strategist at RBC Capital Markets. “Building permits are fairly volatile ... and the headline number was offset by a sharp revision in the previous month.”
Further data this week include the Ivey Purchasing Managers Index for April at 10:00 a.m., April housing starts on Thursday, and the key April employment report and March international merchandise trade data on Friday.
The Canadian dollar will likely get further direction from the performance of oil prices since Canada is a major producer and exporter of oil.
“From a Canadian dollar perspective, if oil were to test new highs we could see some strength,” said Strauss.
Oil prices, which hit a record high above $120 a barrel on Monday, slipped slightly on Tuesday. But the market remains concerned about threats to oil supplies and that could help the commodity to a fresh high.
Canadian bond prices were up across the curve as earnings from Fannie Mae FNM.N, a provider of U.S. home financing, came in weaker than expected and reminded investors that problems in the U.S. housing market persist.
“It does seem to reflect some pessimism in the U.S. with some financial market losses, the Fannie Mae and so on seem to have put a bit of a bid tone into the U.S. bond market and Canada, I think, is really just taking part in that,” said Eric Lascelles, chief economics and rates specialist at TD Securities. “And building permits were a little worse than expected so that is helping out.”
The overnight Canadian Libor rate was 3.0266, unchanged from Monday.
Monday’s CORRA rate was 3.0014 percent, up from 2.9947 percent on Friday. The Bank of Canada publishes the previous session’s rate at around 9 a.m. daily.
The two-year bond was up 12 Canadian cents at C$102.05 to yield 2.722 percent. The 10-year bond rose 16 Canadian cents to C$103.01 to yield 3.607 percent.
The yield spread between the two- and 10-year bonds was 88.5 basis points, up from 84.2 at the previous close.
The 30-year bond increased 35 Canadian cents to C$115.30 to yield 4.094 percent. In the United States, the 30-year treasury yielded 4.556 percent.
The three-month when-issued T-bill yielded 2.58 percent, down from 2.64 percent at the previous close.
Editing by Bernadette Baum