April 7, 2008 / 1:53 PM / in 10 years

Canada dollar up, as hot commodities offset cool data

TORONTO (Reuters) - The Canadian dollar was up slightly against the U.S. dollar on Monday, as robust commodity prices offset the drag from data which showed the level of Canadian building permits fell for the fourth month in a row in February.

Domestic bond prices fell as a positive tone in the equities markets took away some of the safe haven appeal for government debt.

At 9:40 a.m., the Canadian dollar was at C$1.0089 to the U.S. dollar, or 99.12 U.S. cents, up from C$1.0093 to the U.S. dollar, or 99.07 U.S. cents, at Friday’s close.

The Canadian dollar has been locked in a range trading on either side of parity for the better part of four months, and it looks likely to stay there for now as speculators are unsure of which way to take it, said Jack Spitz, director of foreign exchange at National Bank of Canada.

“It’s trading as a North American currency, so if the market is biased to selling dollars, it will sell Canada as well.”

Robust prices for oil and gold, two major Canadian exports, lent support to the Canadian dollar, but it was unable to make strong gains on the greenback due to a weak domestic economic report.

Data that showed that Canadian building permits unexpectedly fell 1 percent in February, which could signal that construction activity is set to cool.

The economic downturn in the United States, which many analysts are calling a recession, was seeded in a collapse of the U.S. subprime mortgage sector, which then spread to the rest of U.S. housing sector.

But the Canadian data does not signal a U.S.-style housing slowdown, said Eric Lascelles, chief economics and rates strategist at TD Securities.

“It does signal that the housing market in Canada is probably softening a little bit, but I don’t think we should get too excited and we don’t need to draw any particular parallels to the U.S.,” he said.

“The Canadian housing market was extremely strong for a long while, it is softening a little bit and I think we can probably expect it to continue to soften.”

The decline in building permits in February came almost entirely in Canada’s most populous province, Ontario, where nonresidential construction permits plummeted 45 percent.

Statistics Canada said that excluding Ontario, building permits would have been up a whopping 9.8 percent.

Analysts surveyed by Reuters predicted, on average, a 1 percent rise.

Ontario is Canada’s manufacturing heartland and has been hit hardest by softer demand for exports to the weakening U.S. economy, and the rise of the Canadian dollar.

The currency is up around 60 percent since 2002, largely on the back of stronger prices for the commodities that Canada produces.

BONDS DECLINE

Canadian bond prices fell in response to a positive outlook in equity markets, and as traders unwound some of Friday’s gains.

“We’re seeing an unwind of Friday as people have had a chance for a sober second thought on the U.S. job numbers and realized that they don’t guarantee a recession as much as they signal something in that direction, so people are feeling a little more optimistic again,” said TD’s Lascelles.

A report had showed that U.S. payrolls had their biggest decline in five years.

Canadian economic data due this week includes housing starts figures for March on Tuesday, trade data for February on Thursday, and the new housing price index for February on Friday.

The overnight Canadian Libor rate was 3.5550 percent, down from 3.5883 on Friday.

Friday’s CORRA rate was 3.4995 percent, down from 3.5027 percent on Thursday. The Bank of Canada publishes the previous day’s rate around 9 a.m. daily.

The two-year bond fell 8 Canadian cents to C$101.98 to yield 2.792 percent. The 10-year bond dropped 33 Canadian cents to C$103.30 to yield 3.572 percent.

The yield spread between the two- and 10-year bonds was 78.0 basis points, up from 77.0 basis points at the previous close.

The 30-year bond slid 54 Canadian cents to C$116.53 to yield 4.030 percent. In the United States, the 30-year Treasury yielded 4.363 percent.

The three-month when-issued T-bill yielded 2.09 percent, up from 2.06 percent at the previous close.

Editing by Renato Andrade

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