December 13, 2007 / 9:55 PM / in 10 years

Canada dollar weakens as U.S. data lifts greenback

TORONTO (Reuters) - Some firmer, but not stellar, economic data was not enough to give the Canadian dollar a lift against the U.S. dollar on Thursday as figures showing U.S. consumers are in full holiday shopping mode lessened concerns of a recession and gave the greenback a lift.

Canadian bond prices fell after the solid economic news lessened the appeal of safe-haven government debt.

The Canadian dollar ended at C$1.0201 to the U.S. dollar, or 98.03 U.S. cents, down from C$1.0132 to the U.S. dollar, or 98.70 U.S. cents, at Wednesday’s session close.

The currency fell as low as 97.71 U.S. cents during the session, its lowest level since mid-September. In November, it rose as high as US$1.1039, leading top central bank officials and government ministers to express concern about the potential negative impact it would have on the manufacturing sector.

But Statistics Canada said on Thursday that Canadian manufacturing sales inched 0.1 percent higher in October as strong sales in aerospace and other sectors offset weakness in the auto industry.

Analysts in a Reuters survey had expected factory sales to decline by 1 percent.

“Overall, this was a very strong report, suggesting that there still remains some life in the Canadian manufacturing sector, despite the strength of the Canadian dollar and the slowing U.S. economy,” said Millan Mulraine, economics strategist at TD Securities.

“The big gain in real shipments will also have important upside implications for Q4 GDP in Canada.”

But the upside surprise in Canadian manufacturing numbers was mostly overshadowed by U.S. data on retail sales and producer prices, which came in much higher than the market had anticipated.

“The market is going to closely monitor data coming out of Canada, but right now I think the focus is still very much on the global credit markets and the U.S. economy,” said Gareth Sylvester, senior currency strategist at HIFX Plc in San Francisco.

The data showed that U.S. consumers are still spending, easing market concerns that the ongoing credit crunch and the U.S. housing crisis could push the world’s biggest economy into a recession.

Other Canadian data for the day included labor productivity, which grew by 0.2 percent in the third quarter, and Canadian new home prices, up 0.1 percent in October from September, Statistics Canada said.

BONDS FALL

Canadian bond prices ended lower in sympathy with the larger U.S. Treasury market as the strong U.S. data was seen as reducing the chances of further interest rate cuts by the U.S. Federal Reserve.

The main event for the bond market was the U.S. producer prices report, which showed inflation remains a concern, as the U.S. Federal Reserve pointed out when it cut its bellwether rate by 25 basis points this week instead of the 50 points that many had expected, said Carlos Leitao, chief economist at Laurentian Bank of Canada.

“That scenario under which inflation is dead, well, maybe it’s not quite dead yet.”

The two-year bond fell 27 Canadian cents to C$100.60 to yield 3.925 percent. The 10-year bond slid 93 Canadian cents to C$98.90 to yield 4.142 percent.

The yield spread between the two-year and 10-year bond moved to 21.4 basis points from 24.5 at the previous close.

The 30-year bond declined C$1.56 to C$112.95 to yield 4.227 percent. In the United States, the 30-year Treasury yielded 4.636 percent.

The three-month when-issued T-bill yielded 3.88 percent, down from 3.89 percent at the previous close.

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