CANADA FX DEBT-C$ firms as sentiment buoyed by U.S. budget talks

Mon Dec 17, 2012 10:58am EST
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* C$ at C$0.9844 vs US$, or $1.0158
    * Touches C$0.9882, or $1.0119 earlier, weakest since Dec 10
    * C$ hits 2012 high against yen
    * Bond prices drift lower across the curve

    By Solarina Ho
    TORONTO, Dec 17 (Reuters) - The Canadian dollar strengthened
against the greenback on Monday after earlier touching a
one-week low, as some optimism over U.S. budget talks helped
support the commodity-linked currency.
    The first real movement in talks over the so-called fiscal
cliff began on Sunday, with Republican House Speaker John
Boehner edging closer to President Barack Obama's demands on
    "The general undertone for the day seems to be optimism on
budget talks. John Boehner did agree to raise rates on the
wealthy in exchange for entitlement cuts. That's a big move in
terms of the standoff," said Rahim Madhavji, President at
Knightsbridge Foreign Exchange.
    "That optimism is just carrying through in the market today
...(the Canadian dollar) has been grinding higher, but it does
need a catalyst to continue. The market undertone is still the
same as over the last week."
    At 9:55 a.m. (1455 GMT), the Canadian dollar stood
at C$0.9844 versus the U.S. dollar, or $1.0158, compared with
C$0.9865, or $1.0137, at Friday's North American session close.
    Camilla Sutton, chief currency strategist at Scotiabank saw
U.S. dollar resistance against Canada's at the 100-day moving
average at C$0.9893 and support around C$0.9832.
    Earlier, the currency touched C$0.9882, or $1.0119, its
weakest level since Dec. 10.
    "There doesn't really seem to be any specific news that
would justify that, so it seems like it's probably flow driven,
which I would suggest implies that it does fade," said Sutton,
adding that the U.S. budget talks were helping risk sentiment in
other currencies.
    The Canadian dollar was outperforming most major currencies,
including the Japanese yen, where it hit its strongest level
since May 6, 2011 following a landslide election victory for
Japan's Liberal Democratic Party, which is committed to
aggressive monetary easing.
    Analysts also said a smattering of North American data did
little to move the currency.
    The Canadian dollar's growing reputation as a safe-haven
currency, however, was supported by data which showed that
international investors bought C$13.3 billion in Canadian
securities during the month of October. 
    "This interest, however, does come at a cost for the wider
economy. The Bank of Canada has noted that investor demand is
one of the factors that had propped up the currency, which makes
the eventual rotation in the drivers of growth to net exports
that much more difficult to achieve," David Tulk, chief Canada
macro strategist at TD Securities, said in a research note.
    Canadian government bond prices slipped across the curve,
with the two-year bond losing 4 Canadian cents to
yield 1.150 percent, and the benchmark 10-year bond 
shedding 24 Canadian cents to yield 1.817 percent.