CANADA FX DEBT-C$ strengthens as Spain dodges downgrade

Wed Oct 17, 2012 4:27pm EDT
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* C$ ends at C$0.9780 vs US$, or $1.0225
    * Moody's keeps Spain at investment grade, boosts sentiment
    * Currency helped by strong U.S. housing report
    * Bank of Canada's less hawkish tone limits C$ gains

    By Claire Sibonney
    TORONTO, Oct 17 (Reuters) - Canada's dollar firmed against
the U.S. currency on Wednesday, following a broad rally in
riskier assets after Spain avoided a debt-rating downgrade and
on growing speculation its government will ask for a bailout
next month. 
    Credit ratings agency Moody's affirmed Spain's
investment-grade rating late Tuesday, assuaging widespread fears
that Spain could be cut to "junk" status. Moody's based its
decision on the assumption that Madrid would ask for help in
holding down its borrowing costs. 
    "Overall market sentiment has improved," said Darren
Richardson, a senior corporate dealer at CanadianForex.
    "Spain not being downgraded to junk has provided a little
bit of confidence."
    Data that showed groundbreaking on new U.S. homes surged in
September at its fastest pace in more than four years also
helped the Canadian dollar. Most of the country's exports, from
building materials to oil, go to its southern neighbor.
    The currency ended the North American session at
C$0.9780 versus the U.S. dollar, or $1.0225, compared with
C$0.9868, or $1.0134, at Tuesday's close.
    Richardson said Canadian dollar resistance was holding in
around C$0.9775, or $1.0230. 
    Market players noted that the Canadian dollar has not gained
to the same extent as some other currencies. They pointed to a
recent speech by Bank of Canada Governor Mark Carney, which
investors have interpreted as being less hawkish on interest
rates. [ID: 
    "(There's) probably a lingering impact from Carney's speech
the other day," said Benjamin Reitzes, senior economist and
foreign exchange strategist at BMO Capital Markets.
    Canada's dollar was weak against other major currencies on
Wednesday. It 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. 
    The Canadian currency dropped to C$1.0195 versus the
Australian currency, or 98.09 Australian cents, its
weakest level since Oct 1. The pair often move in tandem as both
Canada and Australia are natural resource exporters.
    Looking ahead to Thursday, investors will be paying close
attention to China's growth figures, due overnight.
    China's annual economic growth probably slowed for a seventh
straight quarter in the July-September period to the weakest
level since the depths of the global financial crisis, a Reuters
poll showed, reinforcing the case for further policy stimulus.
    Canadian bond prices highlighted the move away from safe
haven assets, tracking U.S. Treasuries lower. 
    The two-year bond fell 9 Canadian cents to yield
1.125 percent, while the benchmark 10-year bond 
dropped 76 Canadian cents to yield 1.906 percent.