June 23, 2011 / 1:44 PM / in 9 years

CANADA FX DEBT-C$ drops on sour view of U.S. economy

 * C$ drops to C$0.9792 to the U.S. dollar, or $1.0212
 * Bond prices rally as risk sentiment sours
 * U.S. jobless claims add to bleak view of U.S. economy
 TORONTO, June 23 (Reuters) - Canada's dollar extended
losses against the U.S. currency on Thursday morning, as a rise
in U.S. weekly jobless claims came on the heels of a bleaker
U.S. economic growth forecast from the U.S. Federal Reserve.
 The Canadian dollar sold off into the Wednesday's North
American session end after reaching a one-week high, as the
U.S. central bank gave no hint that it would offer more
monetary support to the U.S. economy. It had also downgraded
its view of the labor market. [ID:nN1E75K22F]
 "There's just more momentum of that, driven by the rising
jobless claims," said Mazen Issa, macro strategist at TD
Securities, noting that new U.S. claims for unemployment
benefits rose above the psychological level of 400,000.
 Initial claims for state unemployment benefits climbed
9,000 to a seasonally adjusted 429,000, the U.S. government
data showed. The prior week's figure was revised up to 420,000.
Economists polled by Reuters had forecast claims to edge up to
415,000 from a previously reported count of 414,000.
 "Unless the economy really starts to show a material
improvement on the labor market, I think the Canadian dollar is
going to be very hesitant to grind higher," said Issa.
 Further pressure on the Canadian dollar came on the back of
a steep drop in the price  of crude oil as the International
Energy Agency said it would release crude from its strategic
reserve. Canada is a net exporter of oil, and the currency
often takes its cue from oil prices.
 Risk sentiment was dented also by European Central Bank
President Jean-Claude Trichet, who said the warning lights are
flashing red on the euro zone's debt crisis. [ID:nLDE75M0C0]
 Evidence of slower economic growth also hurt sentiment.
Private sector activity slowed in China and Europe this month
just as the outlook for the United States has darkened,
according to data on Thursday. [ID:nLDE75M0UB]
 Later in the session, Bank of Canada Deputy Governor John
Murray will speak twice in Alberta, although he is largely
expected to reiterate the central bank's message given on
Wednesday when Governor Mark Carney appeared before a Senate
 The governor said the country's economic growth is expected
to slow. He also joined the government in calling for a
"firewall" around Greece to ensure its debt crisis does not
spill over to infect the global financial system.
 At 9:15 a.m. (1315 GMT), the Canadian dollar was at
C$0.9792 to the U.S. dollar, or $1.0212, down from C$0.9726 to
the U.S. dollar, or $1.0282, at Wednesday's finish of C$0.9724
to the U.S. dollar, or $1.0284.
 Canadian government bond prices rallied as risk sentiment
soured. The two-year bond CA2YT=RR gained 9 Canadian cents to
yield 1.469 percent, while the 10-year bond CA10YT=RR climbed
49 Canadian cents to yield 2.922 percent.
 (Reporting by Ka Yan Ng, Editing by Chizu Nomiyama)

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