January 29, 2009 / 9:48 PM / 11 years ago

CANADA FX DEBT-C$ weaker as oil drops, investors shun risk

* C$ weaker as oil down to $41.44 a barrel

* Bonds largely lower as supply concerns persist

By Jennifer Kwan

TORONTO, Jan 29 (Reuters) - Canada’s dollar weakened against the greenback on Thursday as the price of oil dropped and a batch of bleak U.S. economic data kept investors away from riskier assets.

A fresh wave of dismal U.S. data, including labor market and housing figures, added to the economic gloom and rattled investor confidence, sending North American equity markets lower. [ID:nN29272638]

This, in turn, helped to prop up the U.S. dollar as investors move to safer havens, said Millan Mulraine, economics strategist at TD Securities.

“When all the boats are leaking you want to jump to the biggest boat,” he said.

The Canadian dollar finished at C$1.2233 to the U.S. dollar, or 81.75 U.S. cents, down from Wednesday’s close of C$1.2152 to the U.S. dollar, or 82.29 U.S. cents.

The weakness in the Canadian currency and stocks followed a statement from the Federal Reserve on Wednesday which pointed to a grim outlook, said George Davis, chief technical strategist at RBC Capital Markets.

“It sent risk aversion higher because their economic outlook was very bleak,” said Davis. “The market was expecting a little bit more upbeat view, or certainly not as pessimistic as it was.”

“We’ve seen people get out of equity markets and reduce their risk profile on those statements,” he added. “In that type of environment we tend to see the Canadian dollar weaken.”

As well, the price of oil CLc1 fell 72 cents to settle at $41.44 a barrel, as economic gloom hit. [ID:nSP148153]

Despite the weakness, the Canadian currency earlier traded in a relatively tight range on Thursday as the market digested events that took place this week, said Michael Gregory, senior economist at BMO Capital Markets.

These included Tuesday’s release of the federal budget that promised billions in tax cuts and spending and a speech the same day from Bank of Canada Governor Mark Carney, who tried to allay concerns about deflation.


Canadian bond prices were lower across the curve, following a big slide in the U.S. Treasury market, as the broader concern of swelling supply weighed.

The overall tone in bond markets “remains a little nervous because of increased supply tied to deficits,” said Mark Chandler, fixed-income strategist RBC Capital Markets.

In unveiling its budget on Tuesday, the federal government estimated it will run a C$85 billion budget deficit over five years.

In Canada, data on Thursday showed that industrial product prices and raw materials prices dropped [ID:nN29397459] but the reading had a negligible impact on the market.

The two-year bond fell 5 Canadian cents to C$102.44 to yield 1.393 percent, while the 10-year bond slipped 83 Canadian cents to C$109.52 to yield 3.068 percent.

The 30-year bond fell C$1.60 Canadian cents to C$120.60 to yield 3.805 percent. In the United States, the 30-year Treasury yielded 3.600 percent. (Reporting by Jennifer Kwan; Editing by Jeffrey Hodgson)

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