Loonie flat but outperforms majors in thin trade

The Canadian dollar was little changed against the U.S. dollar on Thursday morning but that meant it outperformed other major currencies as the greenback consolidated the sharp safe-haven gains it made in thin year-end trade in the previous session.

The Canadian currency took its cue from firmer U.S. equities as Italian bond yields fell and investors digested a new spate of economic data. <.

Figures on Thursday showed new U.S. claims for unemployment benefits rose more than expected last week, but the underlying trend continued to point to improving labor market conditions.

Sentiment for risk assets was still on shaky ground, however, as the euro fell to a 10-year low against the yen and to its lowest level in more than 15 months versus the U.S. dollar following the Italian bond sale.

(The Canadian dollar) is right up there at the top of the table with yen, so we have had a better performance, said Stewart Hall, senior currency strategist at RBC Capital Markets. There was some considerable give-up yesterday though in line with the rest of the dollar pairs, but otherwise fairly well behaved today.

Much of the story continues to reside in Europe, most of the focus being there, what activity there is really was concentrated on the Italian auctions that somewhat disappointed, so if there are any trades to be exercised they seem to be working through euro.

Italy sold 7.02 billion euros of three- and 10-year bonds. Yields were lower than at previous sales but cautious investors still demanded a near 7 percent yield to buy 10-year paper, a level seen as being unsustainable.

At 9:46 a.m. (1446 GMT), the Canadian dollar was at C$1.0230 against the U.S. dollar, or 97.75 U.S. cents, up slightly from Wednesday's North American session close of C$1.0242 to the U.S. dollar, or 97.64 U.S. cents.

The currency lost more than a penny against the U.S. dollar on Wednesday as investors looked to close the books on 2011 with a push to buy greenbacks.

Hall said in the absence of Canada-specific drivers, the 50-day moving average at C$1.0216 was providing some support for the U.S. dollar against the Canadian currency.

However, with trading volume so thin, moves this week and next will still be seen as exaggerated.

We are operating in a vacuum and pricing in a vacuum isn't real in a sense that a confirmation will have to come out of next week's market activity and even then really it might be the second week in January before we're really seeing where pricing levels ought to be under full market liquidity, Hall said.

Canadian government bond prices slipped across the curve, tracking U.S. Treasuries lower despite lingering worries about the European sovereign debt crisis.

The two-year bond was down 5 Canadian cents to yield 0.961 percent, while the 10-year bond lost 12 Canadian cents to yield 1.969 percent.