TORONTO (Reuters) - The Canadian dollar fell 0.4 percent against the U.S. dollar on Wednesday as investors worried that record high oil prices would begin to crimp global economic growth.
Canadian bond prices were higher as lower equity prices increased the safe-haven appeal of government debt.
The Canadian dollar closed at C$1.0070 to the U.S. dollar, or 99.30 U.S. cents, down from C$1.0029 to the U.S. dollar, or 99.71 U.S. cents, at Tuesday’s close.
“The Canadian bulls are having second thoughts just blindly following the oil price higher,” said Matthew Strauss, senior currency strategist at RBC Capital Markets.
U.S. crude oil CLc1 hit a record $123.75 a barrel during the session, more than double what it cost a year ago. See <ID:nN0725103>
Higher oil prices are often a positive for the Canadian dollar as Canada is a major oil producer and exporter, but the new daily highs for the commodity are beginning to make investors nervous, Strauss said.
“It seems that this increased concern that these record high oil prices might weigh on U.S. and global growth is reflected in equity prices.”
The main index on the Toronto Stock Exchange, which is heavily weighted with energy company shares, closed down 42.77 points, while New York’s Dow Jones industrial average ended down 206.48 points.
Movements in the Canadian dollar are likely to be muted ahead of the key Canadian jobs report for April due out on Friday. The market is looking for the economy to have added 10,000 jobs, but the range of forecasts is from a loss of 10,000 jobs to a gain of 30,000 jobs.”
Canadian bond prices were modestly higher in response to the lower equities, but the real story was how much the Canadian market underperformed the U.S. Treasury market, said Eric Lascelles, chief economics and rates strategist at TD Securities.
For the past couple of weeks, the Canadian market has been the outperformer, but it may have gone too far.
“It had gotten to absurd levels,” Lascelles said.
“The Canadian five-year yield was lower than the U.S. five-year yield, even though no one in their right mind could argue that Canadian central bank rates could fall below U.S central bank rates.”
The next piece of Canadian data due out is April housing starts on Thursday.
The two-year bond rose 2 Canadian cents to C$101.89 to yield 2.800 percent. The 10-year bond climbed 10 Canadian cents to C$102.50 to yield 3.672 percent.
The yield spread between the two- and 10-year bonds was 86.8 basis points, down from 87.3 at the previous close.
The 30-year bond added 20 Canadian cents to C$114.00 to yield 4.165 percent. In the United States, the 30-year Treasury yielded 4.603 percent.
The three-month when-issued T-bill yielded 2.60 percent, up from 2.59 percent at the previous close.
Editing by Peter Galloway