CANADA FX DEBT-C$ softens on Spain, quarter-end positioning

Fri Sep 28, 2012 5:02pm EDT
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* C$ at C$0.9832 vs US$, or $1.0171
    * C$ up 3.55 percent in third quarter
    * Bonds rise across the curve

    By Solarina Ho
    TORONTO, Sept 28 (Reuters) - Canada's dollar retreated
against the U.S. dollar on Friday after a bevy of North American
data and as attention turned from Spain's new budget to the next
tests for the euro zone.
    The currency tracked global equity markets, which declined
after initial optimism about Madrid's debt-cutting plans gave
way to anxiety over its troubled banks and faltering global
economic growth. 
    Spain plans to ask for around 40 billion euros ($51.46
billion) in European aid to recapitalize its weak banks, Bank of
Spain deputy Governor Fernando Restoy said on Friday. An
independent report said Spanish banks will need 59.3 billion
euros ($76.3 billion) in extra capital to ride out a serious
economic downturn. 
    Investors rebalancing their portfolios and unwinding their
positions also contributed to the weaker performance.
    "The Canadian dollar has struggled this afternoon ... It's
the end of the quarter and the end of the month and there seems
to be a tremendous demand for U.S. dollar across the board,"
said Adam Button, currency analyst at ForexLive in Montreal.
    "If we look back throughout this quarter, the Canadian
dollar is right at the top of the leaderboard with the New
Zealand dollar as the best performer. Oftentimes, you'll see
speculative money unwind those trades at the end of the quarter
to get into cash."
    The currency finished the week at C$0.9832 versus the U.S.
dollar, or $1.0171, weaker than Thursday's North American finish
at C$0.9809, or $1.0195. 
    Canada's dollar has climbed 3.55 percent during the third
quarter, bolstered by central bank stimulus measures in the
United States and abroad, and the Bank of Canada's own hawkish
    "Canada is in an enviable economic position where we have
solid growth even when it's not spectacular ... In an
environment where there's so much uncertainty, that's one of the
best qualities you'll find in a currency," said Button, who
expects the currency to strengthen further in October.
    Canadian government data showed that the country's economy
grew by an inflation-adjusted 0.2 percent in July on strength in
manufacturing, utilities and wholesale and retail trade.
    The results exceeded analysts' expectations but June growth
figures were revised down, leaving actual gross domestic product
in July almost exactly as forecast.
    "The economy is continuing to expand, but the pace at around
2 percent is very modest and not going to provide much downward
pressure on the unemployment rate," said Paul Ferley, assistant
chief economist at Royal Bank of Canada.
    "With the revision, the overall pace is still fairly
moderate (and) argues for the Bank of Canada to continue to keep
monetary conditions highly stimulative."
    South of the border, U.S. consumer spending rose in August
by the most in six months as households stretched to pay for
higher gasoline prices, according to a government report on
Friday. Other data showed factory activity in the Midwest
contracted this month for the first time in three years.
    The two-year Canadian government bond rose 6.5
Canadian cents to yield 1.069 percent, while the benchmark
10-year bond was up 25 Canadian cents, yielding
1.728 percent.