May 8, 2008 / 1:32 PM / in 10 years

Canadian dollar flinches after weak housing data

TORONTO (Reuters) - The Canadian dollar fell versus the U.S. dollar on Thursday after data showed Canadian housing starts fell 12 percent in April, but the currency’s move was limited ahead of the key jobs report due on Friday.

Domestic bond prices were mostly flat as dealers sifted through the data and tried to gauge what it all means for the Bank of Canada key overnight rate.

At 9:15 a.m. (1315 GMT), the Canadian unit was at C$1.0127 to the U.S. dollar, or 98.75 U.S. cents, down from C$1.0070 to the U.S. dollar, or 99.30 U.S. cents, at Wednesday’s close.

The Canadian currency fell as low as C$1.0144 to the U.S. dollar, or 98.58 U.S. cents, after data from Canada Mortgage and Housing Corp. showed construction of new homes fell short of expectations and included a downward revision to the prior month’s figure.

It was trading around C$1.0135, or 98.67 U.S. cents, just before the 8:15 a.m., when the data was released.

But the Canadian dollar reclaimed the bulk of its losses shortly after as the market understood the slowdown followed sharp gains in January and February that were already considered unsustainable.

“I think the realization going into the report is even with the slightly larger falloff, the level of activity is still fairly strong,” said Paul Ferley, assistant chief economist at Royal Bank of Canada. “And certainly we’re not seeing the kind of collapse in housing activity as is playing out in the U.S.”

The report showed the seasonally adjusted annualized rate of housing starts in Canada was 213,900 units in April, which missed estimates for 225,5000 units. The data also included a downward revision to the March figure to 243,000 units from an originally reported 254,700 units.

Helping to cushion the commodity-linked Canadian dollar’s fall was oil prices sticking near a record high above $124 a barrel. But the impact form oil prices was not too significant as the lofty prices are creating concerns that it could begin to crimp global economic growth.

The move in the Canadian dollar was also a bit muted ahead of the more key April jobs report due out on Friday which is expected to show the economy added 10,000 jobs last month.

Since hitting a two-week high of US$1.0001, valuing a U.S. dollar at 99.99 Canadian cents, midway through Tuesday’s session, the Canadian dollar has steadily eased.

BONDS RISE

Canadian bond prices, which have outperformed the bigger U.S. Treasury market in recent weeks, were flat across the curve as dealers avoided big commitments until getting a better sense as to where the economy is headed.

“The market is still sifting through the numbers and trying to get a better sense in terms of the direction of the economy and as a result monetary policy,” said Ferley.

He also suggested moves were limited ahead of the April jobs report and March international merchandise trade data for March both due on Friday.

The overnight Canadian Libor rate LIBOR01 was 3.0016, down from, 3.0083 on Wednesday.

Wednesday’s CORRA rate CORRA= was 2.9806 percent, down from 2.9889 on Tuesday. The Bank of Canada publishes the previous session’s rate at around 9 a.m. daily.

The two-year bond was up 1 Canadian cent at C$101.90 to yield 2.792 percent. The 10-year rose 1 Canadian cent to C$102.53 to yield 3.668 percent.

The yield spread between the two- and 10-year bonds was 87.6 basis points, up from 86.8 at the previous close.

The 30-year bond was down 3 Canadian cents at C$114.07 to yield 4.160 percent. In the United States, the 30-year Treasury yielded 4.615 percent.

The three-month when-issued T-bill yielded 2.59 percent, down from 2.60 percent at the previous close.

Editing by Renato Andrade

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