C$ dives briefly, then firms as greenback takes a hit

TORONTO: The Canadian dollar was firmer against its US counterpart on Friday after figures that showed the Canadian economy shrank in May for the fifth straight month were overshadowed by US data that weakened the greenback.

The loonie flirted briefly with its weakest levels in more than a decade following the Canadian gross domestic product data, the latest sign the country was likely in recession in the first half of the year.

The US dollar fell against a basket of major currencies after figures showed employment costs rose less than forecast in the second quarter, recording the smallest increase in 33 years, which pared bets the Federal Reserve will resume raising interest rates later this year.

At 9:23 a.m. EDT (1323 GMT), the Canadian dollar was at C$1.2945 to the greenback, or 77.25 US cents, stronger than the Bank of Canada's official close of C$1.3010, or 76.86 US cents, on Thursday.

This was well off the C$1.3099, or 76.34 US cents, touched immediately after the Canadian GDP numbers were released, a level just shy of being the currency's weakest since 2004. The loonie stayed weaker against other major currencies, however.

Canada's economy unexpectedly shrank by 0.2 percent in May from April. It is estimated to have contracted by an annualized 0.6 percent in the first quarter because of the oil price crash. That stands in contrast to the United States, where growth rose by 0.6 percent in the first quarter and by 2.3 percent in the second.

In the United States, the Employment Cost Index, the broadest measure of labor costs, edged up 0.2 percent.

Putting more pressure on the loonie was another decline in prices for oil, a major Canadian export, on supply glut worries after the OPEC cartel indicated there would be no cuts in production. US crude prices were down 0.64 percent at $48.21 a barrel, while Brent crude lost 0.34 percent to $53.13.

Canadian government bond prices were higher across the maturity curve, with the two-year price up 9.5 Canadian cents to yield 0.406 percent and the benchmark 10-year rising 58 Canadian cents to yield 1.431 percent.

The Canada-US two-year bond spread narrowed to -26.3 basis points, while the 10-year spread narrowed to -77.2 basis points.