CANADA FX DEBT-C$ firms on U.S. data, but rate view limits gain

Wed Oct 17, 2012 11:14am EDT
 
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* C$ at C$0.9822 to US$, or $1.0181
    * Currency helped by strong U.S. housing report
    * Moody's keeps Spain at investment grade, boosts sentiment
    * Bank of Canada's less hawkish tone limits C$ gains

    By Alastair Sharp
    TORONTO, Oct 17 (Reuters) - The Canadian dollar firmed
against the U.S. currency on Wednesday after data showed the
budding recovery in the U.S. housing sector is gaining traction.
    Spain's avoidance of a rating downgrade also boosted
sentiment, though gains were limited by a recent speech by Bank
of Canada Governor Mark Carney, which investors have interpreted
as being less hawkish on interest rates.
    The Canadian currency hit C$0.9818 to the U.S
dollar, or $1.0185, soon after the release of data showing
groundbreaking on new U.S. homes in September surged at its
fastest pace in more than four years. 
    Evidence of a recovery in the U.S. housing market helped the
Canadian dollar because most of the country's exports, from
building materials to oil, go to its southern neighbor.
    The currency held most of its gains by 10:43 a.m. (1443
GMT), trading at C$0.9822 to the greenback, or $1.0181, compared
with C$0.9868 at Tuesday's North American close.
    Still, some traders noted the move higher was less sharp
than it could have been and said the currency could struggle to
move past C$0.9810.
    "Unless we see asset markets really box on in a major way
from here, the reaction to what were very good numbers suggests
that we're in for a day of consolidation," said Shane Enright,
executive director of foreign exchange sales at CIBC World
Markets.
    
    SPAIN HELPS, CARNEY WEIGHS 
    Credit rating agency Moody's affirmed Spain's investment
grade rating late on Tuesday, assuaging widespread fears that
Spain could be cut to "junk" status, although Moody's based its
decision on the assumption that Madrid would ask for help in
holding down its borrowing costs. 
    "Stronger risk appetite on the back of Moody's decision not
to downgrade Spain is pretty much lifting all risk assets, the
Canadian dollar is one of those," said Benjamin Reitzes, senior
economist and foreign exchange strategist at BMO Capital
Markets.
    "That's why you're getting some strength, not to the same
extent as some other currencies, that's probably a lingering
impact from Carney's speech the other day."
    The Canadian currency hit an almost two-week low against the
greenback on Tuesday as investors digested a speech by Carney in
which he did not reference a central bank intention to hike
rates once conditions allow. 
    Canada's dollar was weak against other major currencies on
Wednesday, as both the Australian dollar and euro made
broad-based gains. 
    The Canadian currency fell to an almost four-month low of
C$1.2941 versus the euro, or 77.27 euro cents, and a
more than three-month low against the Swiss franc. 
    It was at C$1.0193 versus the Australian currency, or 98.11
Australian cents, its weakest level since Oct 1. The
pair often move in tandem as both Canada and Australia are
natural resource exporters.
    Highlighting the move away from safe haven assets, prices of
Canadian government bonds fell broadly, with the two-year bond
 off 4 Canadian cents to yield 1.100 percent, while
the benchmark 10-year bond fell 43 Canadian cents to
yield 1.870 percent.