August 14, 2009 / 8:54 PM / 11 years ago

CANADA FX DEBT-C$ finishes lower, bonds up, on U.S. data

 * C$ sags to C$1.0998, or 90.93 U.S. cents
 * Bond prices rise with U.S. market on U.S. data
 * U.S. consumer confidence at lowest level since March
 * Canadian manufacturing shipments jump 1.9 pct
 (Adds details, updates prices)
 By Ka Yan Ng
 TORONTO, Aug 14 (Reuters) - The Canadian dollar closed
lower versus the U.S. currency on Friday, pressured by renewed
concerns about economic recovery arising from worsening U.S.
consumer confidence data.
 The currency's fall centered on the Reuters/University of
Michigan preliminary August consumer sentiment survey, which
dropped to 63.2 from 66.0 in July, its lowest level since March
and well below median expectations for a reading of 68.5.
 "What it has introduced into the market is a bit more
caution in terms of just how quickly the U.S. economy is going
to rebound," said Paul Ferley, assistant chief economist at
Royal Bank of Canada, adding that the confidence report was one
of several disappointing data points in recent days.
 Earlier this week, U.S. retail sales figures for July
unexpectedly slipped and there were more indicators that the
weak U.S. labor market was still struggling to stabilize.
 The Canadian dollar finished at C$1.0998 to the U.S.
dollar, or 90.93 U.S. cents, down sharply from C$1.0890 to the
U.S. dollar, or 91.83 U.S. cents, at Thursday's close. For the
week, the currency was off 1.6 percent, its second straight
week of decline.
 The U.S. confidence figures also hit oil and stock markets,
adding further pressure to the commodity-linked Canadian
 The price of oil, a key Canadian export, dropped below $68
a barrel, while equity markets slumped except for Toronto,
which struggled to a small gain in a last-minute rally.
 Early in the session, data showing mild U.S. inflation
[ID:nN13244265] and a jump in Canadian manufacturing shipments
[ID:nN14293720] helped the Canadian dollar edge higher.
 Next week's key data will be Canada's consumer price index
for July. It is likely to show the inflation rate at negative
0.8 percent, according to a Reuters survey ECONCA, after
having its first negative reading since 1994 in June.
 "In Canada, CPI inflation wouldn't seem to be worth
fretting about," said Avery Shenfeld, chief economist at CIBC
World Markets.
 "But it's still the only possible barrier to the Bank of
Canada keeping its pledge to keep rates on hold until mid-2010,
since that pledge already allowed for strong growth in the
first half of next year."
 Canadian bond prices were higher across the curve,
following the U.S. Treasury market as the poor consumer
confidence data convinced investors to exit equities and seek
the relative safety of government bonds.
 Gains began early after the mild U.S. consumer inflation
data, which led the market to believe that the U.S. Federal
Reserve will keep interest rates low for some time.
 The two-year Canadian bond climbed 2 Canadian cents to
C$99.35 to yield 1.324 percent, while the 10-year bond rose 20
Canadian cents to C$102.20 to yield 3.482 percent.
 The 30-year bond increased 40 Canadian cents to C$117.75 to
yield 3.942 percent. In the United States, the 30-year bond
yielded 4.429 percent.
 Canadian bonds had a mixed performance versus their U.S.
counterparts across the curve. The Canadian 30-year bond was
about 48.7 basis points below the U.S. 30-year yield, versus
45.5 basis points on Thursday.
 (Editing by Peter Galloway)

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