January 13, 2009 / 9:56 PM / in 11 years

CANADA FX DEBT-C$ weakens vs greenback; bonds eye U.S. data

* C$ hits lowest level this year after trade data

* Canada trade surplus narrows more than expected

* Bonds flat to higher despite rise in Toronto stocks

By Jennifer Kwan

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

The Canadian currency closed at C$1.2248 to the U.S. dollar, or 81.65 U.S. cents, down from C$1.2154 to the U.S. dollar, or 82.28 U.S. cents, on Monday. Earlier in the day it touched C$1.2345 to the U.S. dollar, or 81.00 U.S. cents, its lowest level so far this year.

Statistics Canada said on Tuesday that the country’s trade surplus narrowed more than expected in November to its lowest level in 11 years as oil prices crumbled and demand for Canadian commodities and other goods waned. [ID:N13254064]

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

A rise in the price of crude helped to put a floor under the Canadian currency, said Jack Spitz, managing director of foreign exchange at National Bank Financial.

Oil CLc1 settled higher at $37.78 a barrel, buoyed by chilly weather in the United States and indications of deep production cuts by Saudi Arabia. [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.

Employment reports from both sides of the border on Friday showed big job losses, which heightened concerns about the depth of the economic downturn, while Bank of Canada surveys this week showed tightening lending conditions and dour business conditions.

“We can see further weakness in the Canadian dollar but that is predicated, once again, on risk aversion trending, commodity market weakness and an overall bid for the U.S. dollar from a safe-haven perspective,” Spitz said.


Canadian bond prices were mostly higher as investors set up for a string of potentially weak U.S. economic data and corporate earnings, said Sheldon Dong, fixed income analyst at TD Waterhouse Private Investment.

“The markets are still fairly defensive,” Dong said.

As well, the Canadian market has not seen the amount of new issuance on the debt side that the U.S. side has been seeing so there may be some “pent-up demand on buying,” he added.

The two-year bond was up 4 Canadian cents at C$103.22 to yield 1.016 percent, while the 10-year bond rose 37 Canadian cents to C$112.62 to yield 2.716 percent.

The yield spread between the two-year and 10-year bond was at 170 basis points, versus 172 at the previous close.

The 30-year bond edged 85 Canadian cents higher to yield 3.559 percent. In the United States, the 30-year Treasury yielded 2.9965 percent. (Reporting by Jennifer Kwan; editing by Peter Galloway)

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