TORONTO: The Canadian dollar lost steam against its US counterpart on Thursday after a top Federal Reserve official said a good outlook on jobs meant the US central bank might scale back on its monetary easing as early as this summer.
The comments provoked a strong reaction in currency and bond markets, with 10-year US Treasuries bouncing higher and the greenback gaining against most major currencies and particularly those tied to commodity-based economies.
The Canadian dollar's slip was not as forceful as that suffered by the Australian, which has fallen 5 percent so far this month.
The prospect of an end to the Fed's asset-buying program further bolstered a view that the United States is on track for a faster recovery than recession-addled Europe, and side-swiped any concerns over weak data.
"Even after all the disastrous US data that came out today ... it looks like a lot of the currencies are going to be unchanged," said David Bradley, director of foreign exchange trading at Scotiabank.
"The market is in that mode right now. Anything that's good for the US, data-wise or (anything that) looks as though there is going to be an end to the slowdown is positive for the US dollar," Bradley said.
The policy of buying $85 billion in Treasuries and other assets every month is designed to keeps borrowing costs low and encourage business hiring.
The trend in US data has been improving, but the trajectory was upset by some wrinkles in Thursday's prints.
US jobless claims rose sharply last week, a sign of a weaker labor market, while ground-breaking at home construction sites tumbled in April and a gauge of underlying inflation pointed to weak demand.
The US economy has shown signs that growth slowed late in the first quarter and in April as Washington's push to trim the budget deficit weighed on consumers and businesses.
"The market is not really focused on what's going on in Canada right now," said Greg Moore, currency strategist at TD Securities. "Essentially it's all about the US"
Despite the softer-than-forecast data, Moore said compared to some of its peers, the United States is still a growth story and the Canadian economy is seen benefiting more so than other economies from overall US strength.
The loonie has underperformed the greenback for most of this week, as the US currency has been bid on across the range of major currencies.
It ended the North American session trading at C$1.0192 to the greenback, or 98.12 US cents, compared with C$1.0172, or 98.31 US cents, at Wednesday's close. Earlier, the currency had weakened to C$1.0208, or 97.96 US cents.
The loonie, as Canada's currency is colloquially known, was stronger against its commodity counterparts, the Australian and New Zealand dollars. It touched its strongest level against the Aussie since October last year and its strongest against the Kiwi since early February.
Friday's Canadian inflation data will be the domestic highlight for this week. Economists polled by Reuters are expecting no growth for the month of April.
"It fits in with the global story as well that you're seeing all kinds of inflation measures in developed economies all over the world disappoint, or below what anybody had been expecting," said Moore.
The price of Canadian government debt rose across the curve of maturities, with the two-year bond up 3.4 Canadian cents to yield 1.010 percent, while the benchmark 10-year bond jumped 35 Canadian cents to yield 1.885 percent.
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