TORONTO (Reuters) - The Canadian dollar skidded to its lowest close in a little over two months on Monday given a tumble in oil prices and nagging concerns about what impact a weak U.S. economy will have on Canada.
Domestic bond prices ended slightly lower as Canadian data that showed the economy grew faster than expected in January was largely ignored given key jobs data due later this week.
The Canadian dollar closed at C$1.0265 to the U.S. dollar, or 97.42 U.S. cents, down from C$1.0215 to the U.S. dollar, or 97.90 U.S. cents, at Friday’s close.
Fears that Canada’s economy will be dragged lower by the U.S. downturn have been weighing on the Canadian dollar and contributed to its 3.4 percent drop in the first quarter of 2008.
Those concerns, along with a sharp pullback in oil prices dominated the session despite economic data released early on that showed Canada’s economy rebounded in the first quarter.
“Overall it was risk aversion ultimately spilling over into weaker commodity prices that affected the Canadian dollar,” said Matthew Strauss, senior currency strategist at RBC Capital Markets. “The data played second fiddle to the greater concerns about how the U.S. slowdown would affect the economy given our close ties with the U.S.”
The commodity-linked Canadian dollar, whose decline in 2008 has been cushioned by record high commodity prices, was pulled lower in the latest session as oil prices fell $4 to below $102 a barrel.
The Canadian currency hit a session low of C$1.0293 to the U.S. dollar, or 97.15 U.S. cents, shortly after midday before it bounced back slightly in the second half of the session.
January gross domestic product grew 0.6 percent in Canada, beating expectations of 0.5 percent growth. It was the biggest monthly increase since April 2005.
Investors were also looking ahead to Wednesday when Bank of Canada Senior Deputy Governor Paul Jenkins will give a speech called “Trends and challenges in the global economy and what they mean for Canada and Ontario” in London, Ontario.
Canadian bond prices ended a touch lower across the curve as investors opted to wait until the more key domestic March employment report due out on Friday before making a move.
The gross domestic product data offered a bit of a surprise to the market, but it was not enough to trigger a sharper move in prices since it only reflected a month and not a quarter.
“With respect to the overall outlook I don’t think anyone is expecting that (GDP) number to save the quarter, and the quarter is ultimately what matters,” said Max Clarke, an economist at IDEAglobal in New York.
“And for the most part I think everyone is looking forward to the end of the week when they receive those employment numbers.”
The two-year bond fell 3 Canadian cents to C$102.62 to yield 2.629 percent. The 10-year bond slipped 9 Canadian cents to C$104.36 to yield 3.440 percent.
The yield spread between the two- and 10-year bonds was 81.1 basis points, from 87.0 points at the previous close.
The 30-year bond dropped 20 Canadian cents to C$118.20 to yield 3.944 percent. In the United States, the 30-year Treasury yielded 4.300 percent.
The three-month when-issued T-bill yielded 1.89 percent, down from 1.90 percent at the previous close.
Editing by Renato Andrade