April 8, 2008 / 1:46 PM / in 10 years

Canada dollar flat despite bullish data, bonds up

TORONTO (Reuters) - The Canadian dollar was little changed against the U.S. dollar on Tuesday, despite an upbeat report showing a flurry of Canadian home building in March.

Domestic bond prices rose in tandem with the larger U.S. market as investors adjusted their positions.

At 9:32 a.m., the Canadian dollar was at C$1.0130 to the U.S. dollar, or 98.72 U.S. cents, up a tad from C$1.0133 to the U.S. dollar, or 98.69 U.S. cents, at Monday’s close.

Canadian housing starts dipped in March, to a seasonally adjusted annualized 254,700 units from 255,600 units in February, according to the Canada Mortgage and Housing Corporation.

While the number far surpassed market expectations for 220,000 starts, it barely budged the Canadian dollar, which may signal a negative trend for the currency in the weeks and months ahead, said David Watt, senior currency strategist at RBC Capital Markets.

“If you don’t react bullishly to bullish news, it tells you something about the direction of an asset price,” he said.

Concerns about how strongly the U.S. economic downturn will spill over into Canada have kept the Canadian dollar struggling for direction, despite robust prices for the energy and non-energy commodities that Canada produces.

On the data side, the domestic reports have shown consistent resilience, but anything sensitive to the U.S. economy or trade has been getting clobbered.

Exports make up around 40 percent of the Canadian economy and data from Statistics Canada on Monday showed the United States absorbed 79 percent of Canadian exports in 2007.

As the U.S. economic outlook weakens, so does the outlook for the Canadian dollar, said Watt.

“It does look like one of those situations where the Canadian dollar is losing some of its appeal around the world.”

BONDS RISE

Bond prices rose along with the larger U.S. market, which has been adjusting since an oversized rally on Friday following a weak U.S. employment report.

“I think the reason we’re seeing a rally is really just sober second thought and it’s almost as if you have this rebound function where any time you have a big move, people say, hmm... that was a big move, and they reverse it,” said Eric Lascelles, chief economics and rates strategist at TS Securities.

The overnight Canadian Libor rate LIBOR01 was 3.4250 percent, down from 3.5550 on Monday.

Monday’s CORRA rate was 3.4992 percent, down from 3.4995 percent on Friday. The Bank of Canada publishes the previous day’s rate around 9 a.m. daily.

The two-year bond rose 3 Canadian cents to C$101.99 to yield 2.786 percent. The 10-year bond climbed 14 Canadian cents to C$103.26 to yield 3.578 percent.

The yield spread between the two- and 10-year bonds was 79.2 basis points, down from 80.6 at the previous close.

The 30-year bond added 10 Canadian cents to C$116.20 to yield 4.048 percent. In the United States, the 30-year treasury yielded 4.321 percent.

The three-month when-issued T-bill yielded 2.18 percent, up from 2.16 percent at the previous close.

Editing by Bernadette Baum

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