January 13, 2009 / 5:11 PM / in 11 years

CANADA FX DEBT-C$ falls vs greenback after trade data

* C$ hits January low after trade data

* Canada trade surplus narrows more than expected

* Bonds mixed; Toronto stocks rise more than 1 percent (Adds quotes, details)

By Jennifer Kwan

TORONTO, Jan 13 (Reuters) - The Canadian dollar fell against the U.S. currency on Tuesday, hitting its weakest level this month, pressured by data that showed the country’s trade surplus narrowed more than expected.

At 11:10 a.m. (1610 GMT), the Canadian currency was at C$1.2280 to the U.S. dollar, or 81.43 U.S. cents, down from C$1.2154 to the U.S. dollar, or 82.28 U.S. cents, on Monday.

At one point, the Canadian unit hit C$1.2315 to the U.S. dollar, or 81.20 U.S. cents.

Statistics Canada said on Tuesday that the country’s trade surplus narrowed more than expected in November to C$1.28 billion, the smallest surplus since October 1997, due to plummeting prices for oil exports. [ID:N13254064]

“It shows that the terms of trade for Canada are obviously starting to be impacted fairly significantly by the global economic slowdown, especially the slowdown we’re seeing in the United States,” said George Davis, chief technical strategist at RBC Capital Markets.

Also pressuring the Canadian currency was U.S. trade data, which showed the U.S. trade deficit posted its biggest contraction in 12 years as weak consumer demand and oil’s descent caused a drop in imports. [ID:nN13386136]

Lower oil prices CLc1 had hit the Canadian dollar early in the day. By midmorning, however, the price of oil edged higher toward $39 a barrel. [ID:nSYD384129]

Canada is a major oil producer and exporter, and movements in the price of crude often sway the Canadian currency. Oil has fallen from a peak price above $147 a barrel reached in July.

Late last week, employment reports in Canada and the United States showed big job losses, heightening concerns about the depth of the economic downturn, while Bank of Canada surveys this week showed tightening lending conditions and dour business conditions.

“The market is still focused on the themes of risk aversion and developments in commodity markets,” Davis said. “What we’ve seen since Friday’s employment reports is an increase in risk aversion, which has pushed equity markets lower.”


Canadian bond prices were mixed with the short end down as stronger equity markets on Tuesday pulled funds away from the bond market and as prices tracked U.S. Treasuries, which eased after Federal Reserve Chairman Ben Bernanke suggested more should be done to buy assets from banks to get them lending again. [ID:nN13386240]

“We’ve seen pretty decent losses in U.S. bonds,” said Andrew Pyle, wealth advisor at Scotia McLeod. “Canada is really tracking along what the U.S. is going through.”

The two-year bond was down 5 Canadian cents at C$103.14 to yield 1.058 percent, while the 10-year bond rose 15 Canadian cents to C$112.40 to yield 2.741 percent.

The yield spread between the two-year and 10-year bond was at 169 basis points.

The 30-year bond edged 7 Canadian cents higher to yield 3.597 percent. In the United States, the 30-year Treasury yielded 3.0188 percent. (Reporting by Jennifer Kwan; editing by Peter Galloway)

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