CANADA FX DEBT-Canadian dollar slides on soft U.S. data, Europe

Thu Apr 19, 2012 10:29am EDT

* C$ at C$0.9945 vs US$, or $1.0054
    * U.S. data weighs on risk sentiment
    * Europe offsets Bank of Canada's rosier view
    * Bond prices mixed

    By Jon Cook	
    TORONTO, April 19 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Thursday after soft U.S.
economic data suggested a slowdown in the economy of Canada's
largest trading partner and ongoing euro zone worries weighed on
risk sentiment.	
    Data from the U.S. on Thursday showed initial claims for
state unemployment benefits edged down to a seasonally adjusted
386,000, below the median estimate from a Reuters poll of
economists that had forecast claims falling to 370,000.
 	
    The four-week moving average for new claims, considered a
better measure of labor market trends, rose 5,500 to 374,750. 	
   "The U.S. jobs number definitely provided the market with
some impetus to get into a slight risk aversion," said John
Curran, senior vice president at CanadianForex.	
    U.S. housing data on Thursday also raised doubts about the
strength of the American recovery, with home resales falling in
March. However, the data also revealed the supply of properties
on the market tightened and prices inched higher.
 	
    At 10:18 a.m. (1418 GMT), the Canadian dollar was
at C$0.9945 against the U.S. dollar, or $1.0054, down from
Wednesday's finish at C$0.9913 against the U.S. dollar, or
$1.0088.	
    France and Spain sold all the bonds they wanted at auction
on Thursday, though for Spain the cost was higher yields,
indicating growing concerns the government will not be able to
tame its deficit.  	
    Also weighing were rumors that France's sovereign rating may
be downgraded further and a survey that showed euro zone
consumer confidence fell in April after three months of gains.
 	
    European and U.S. economic concerns overshadowed an
improving domestic story.	
    Earlier this week, the Bank of Canada kept interest rates
unchanged at 1 percent, as expected, but signaled that it was
starting to think more seriously about tightening monetary
policy. 	
    "Everyone took that as a feather in Canada's cap," said
Curran, adding it boosted the Canadian dollar's appeal. "The
problem being that everyone and their brother is long on Canada,
so I wouldn't be surprised to see a filtering out of that
trade."	
    Curran saw the currency weakening further against the
greenback, but added there should be good demand to buy the
Canadian dollar as it gets closer to parity. He said it would
likely remain in its range from the last few months, between
C$0.9850 to C$1.0050. 	
    The surprisingly hawkish Bank of Canada stance prompted
several of the country's primary dealers to pull forward their
forecasts for an interest rate hike, according to a Reuters
poll, with the central bank now expected to tighten policy early
next year. 	
    "The domestic story is pretty decent. The Bank of Canada
made that clear this week," said Shane Enright, an executive
director of foreign exchange sales at CIBC World Markets. "But
you still have a lot of issues in Europe."	
    On Wednesday Bank of Canada Governor Mark Carney said the
euro zone debt crisis was "still the biggest downside risk,
external downside risk" to the Canadian economy. 	
    Canadian government bond prices were mixed. The two-year
bond was unchanged to yield 1.323 percent. The
benchmark 10-year bond rose 11 Canadian cents, wotj
a yield pf  2.031 percent.
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