Published: Mon, 06 Apr 2009 17:06:23 +0200

Grim Canadian Data Could Add to Canadian Dollar Weakness

(CEP News) - Weaker Canadian data could be having a slight impact on the Canadian dollar as equity momentum dominates currency markets.

A drop in equities is causing a rally in the U.S. dollar across the board. Positive market sentiment caused a modest sell-off in USD/CAD in the Asian session. However, the sentiment dissipated just before the North American open. The cross is trading around the 1.24 level.

The Canadian dollar continues to be one of the worst performers against the U.S. dollar. Only the Swedish krona and Norwegian krone are lower than the loonie among the G10 currencies.

Dismal Canadian data could have added to the sell-off following a massive fall in building starts and more weakness in the manufacturing sector. Building permits plunged 15.9% month-over-month to $3.7 billion, following the downwardly revised 6.0% decline in January, Statistics Canada reported on Monday. Economists expected a 4.0% decline.

In more bad data, Canada's Ivey purchasing managers' index unexpectedly fell to 43.2 in March. Economists had expected a reading of 47.0 following February's 45.2 level.

According to some currency strategists, USD/CAD continues to bounce around in a broad range. Support continues to hold around the 1.22 CAD level.

Currency strategists from RBC Capital Markets said they would need to see a close below 1.2231 CAD to shift the bullish sentiment against the U.S. dollar. However, they said that if USD/CAD does close below that level, it could lead to a test of 1.2030 CAD.

Sacha Tihanyi, currency strategist at Scotia Capital, said there are many negative factors impacting the Canadian dollar and that if equities remain stable through most of the week, there could be a prolonged sell-off in the loonie.

Tihanyi said he would look for gains to be capped around 1.2750 CAD.

"I would probably recommend buying Canadian dollars at that level. I think it represents good value," He said.

Euro/USD down 0.95 cents to 1.3389

USD/CAD up 1.08 cents to 1.2405

USD/Yen up 0.46 points to 100.77

GBP/USD down 0.66 cents to 1.4776

AUD/USD down 0.56 cents to 0.7097

Euro/Yen down 0.35 points to 134.91

Euro/GBP down 0.26 pence to 0.9062

GBP/CAD up 0.76 cents to 1.8326

CAD/Yen down 0.36 points to 81.23

Euro/CAD up 0.23 cents to 1.6608

The U.S. Dollar Index is up 0.46 points to 84.63

All data taken at 11:05 a.m. EDT.

By Neils Christensen, neilsc@economicnews.ca, edited by Sarah Sussman, ssussman@economicnews.ca