January 12, 2010 / 9:45 PM / in 8 years

CANADA FX DEBT-C$ stumbles after surprise trade deficit

* Ends at C$1.0393 per US$, or 96.22 U.S. cents

* China signals tighter monetary environment

* Bond prices mostly higher across curve (Updates to close, adds details, quotes)

By Jennifer Kwan

TORONTO, Jan 12 (Reuters) - The Canadian dollar fell against the U.S. currency on Tuesday after data showed the country’s trade balance unexpectedly slipped into deficit in November, raising worries about the health of the recovery.

The currency dropped to a session low of C$1.0415 to the U.S. dollar, or 96.02 U.S. cents, from C$1.0354, or 96.58 U.S. cents just before the report’s release.

“The numbers in Canada this morning weren’t great,” said Jon Gencher, director of foreign exchange sales at BMO Capital Markets.

A Statistics Canada report on Tuesday showed the trade deficit totaled C$344 million as exports grew 1.1 percent from the previous month to C$31.58 billion and imports jumped 3.9 percent to C$31.93 billion.

The median forecast of analysts in a Reuters poll was for a surplus of C$600 million. [ID:nN12188141]

But market watchers said the Canadian dollar was weaker leading into the data after China set a negative tone by saying it would tighten banks’ reserve requirements, raising concerns that Chinese demand could fall and slow global economic recovery, hitting commodity-linked currencies. [FRX/]

“It’s looking like China is entering into a much more tighter monetary policy environment,” said Camilla Sutton, currency strategist at Scotia Capital.

That disappointing reading outweighed data that showed new home prices rose 0.4 percent in November for the fifth consecutive monthly gain, adding to growing evidence that the housing market is leading Canada’s recovery. [ID:nN12254432]

The Canadian dollar finished at C$1.0393 to the U.S. dollar, or 96.22 U.S. cents, down from Monday’s finish at C$1.0335 to the U.S. dollar, or 96.76 U.S. cents.

Apart from the China developments, the price of oil, a key Canadian export, fell below $81 a barrel, while gold prices dropped as well. [O/R] [GOL/]

BOND PRICES MOSTLY HIGHER

Canadian bond prices moved higher as China’s influence and disappointing results from U.S. heavyweight Alcoa Inc (AA.N) shook investor confidence and curtailed risk appetite.

“It’s basically taking risk off the table so people may be taking profits on the stocks and just hiding in the bond side. It’s a bit of an asset shift,” said Sheldon Dong, fixed income analyst, TD Waterhouse Private Investment. [US/]

The two-year Canada bond CA2YT=RR was unchanged at C$99.93 to yield 1.288 percent, while the 30-year bond CA30YT=RR climbed 62 Canadian cents to C$114.70 to yield 4.101 percent.

Canadian bonds mostly underperformed U.S. issues, with the two-year yield 38 basis points above its U.S. counterpart, up from about 35 basis points in the previous session. (Editing by Rob Wilson)

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