CANADA FX DEBT-C$ revisits parity on weak stream of data

Thu Mar 22, 2012 4:43pm EDT
 
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* C$ ends down at C$0.9997 vs U.S. dollar, or $1.0003
    * Canadian bonds rally, outperform U.S. Treasuries
    * Domestic retail sales miss expectations in January

    By Claire Sibonney	
    TORONTO, March 22 (Reuters) - The Canadian dollar hit a
two-week low against its U.S. counterpart and bond yields
dropped on Thursday after disappointing domestic retail sales
figures added to worries about global growth following weak
Chinese and European manufacturing data.	
    Canadian retail sales rose by much less than expected in
January and would have fallen had it not been for a healthy auto
sector. 	
    "Let's face it - Canada is highly correlated with what's
going on in the U.S. and Canadian consumers are extended," said
Tom O'Gorman, director of fixed income at Bissett Investment
Management in Calgary.	
    "It was definitely disappointing," he added, but noted the
Canadian currency was mostly following the trend in equity
markets, which slipped on global manufacturing data that showed
a drop in new orders in both the euro zone and China.
 	
    The Canadian dollar ended the North American
session at C$0.9997 against the U.S. dollar, or $1.0003, down
from Wednesday's North American close at C$0.9923, or $1.0078.
Earlier, the currency weakened to the other side of parity at
C$1.0009 against the greenback, or 99.91 U.S. cents, its softest
level since March 7.	
    Brighter data for Canada's largest trading partner helped
put a floor under losses. The number of Americans claiming new
unemployment benefits dropped to a four-year low last week,
bolstering hopes a recent pick-up in job growth will prove
lasting. 	
    "It suggests that the improvement that we've seen in terms
of these numbers recently has been sustained," said Shaun
Osborne, chief currency strategist at TD Securities. 	
    He added that the Canadian dollar would likely stay within a
narrow range with the greenback, between its 200-day moving
average near parity with the U.S. currency and its 40-day moving
average around C$0.9950.	
    Looking to Friday, market observers will turn their
attention to Canadian inflation data for February and any
signals it may give on the timing of the next Bank of Canada
rate hike.	
    A global Reuters survey last month showed the median
forecast for the next Canadian interest rate hike was pushed
back to the second quarter of 2013. 	
    Higher interest rates tend to help currencies strengthen by
attracting international capital flows and the prospect of
monetary easing typically weakens them.	
    "Given the upward drift we've had in short-term interest
rates in Canada over the last little while, the CPI numbers are
going to be important to determining whether we see the Canadian
dollar weaken a little bit more, or if we see a bit more
strength come back into this market," said Osborne.	
    Canadian bond prices rose across the curve after the
disappointing domestic data and amid the broader risk-off theme,
outperforming U.S. Treasuries. 	
    The two-year bond was up 8 Canadian cents to
yield 1.246 percent, while the 10-year bond rose 35
Canadian cents to yield 2.198 percent. The 30-year bond
 jumped 92 Canadian cents to yield 2.728 percent.	
    "Remember it's the U.S. Fed that's printing money and not
the Bank of Canada as well, so if you look at the very long end,
while 10-years trade very close in yield, Canada's 30 is way
through the U.S.," added Bissett's O'Gorman.	
    "I think that's reflective of the fact that the 30-year bond
is most sensitive to effects of inflation and currency
debasement," he said.