January 17, 2013 / 9:36 PM / in 5 years

CANADA FX DEBT-C$ picks up on surprisingly strong U.S. data

* C$ ends stronger at C$0.9857 vs US$, or $1.0145

* Bond prices slide across the curve

By Claire Sibonney

TORONTO, Jan 17 (Reuters) - The Canadian dollar edged up slightly against the U.S. currency on Thursday after encouraging U.S. economic data pointed to a recovery in housing and employment in Canada’s largest export market.

In the United States, jobless claims dropped to a five-year low, while housing starts accelerated to their fastest pace in four years.

The reports showed the U.S. economy was weathering an uncertain fiscal environment unexpectedly well, and trumped the impact of domestic data that showed foreign investment in Canadian securities more than halved to a six-month low in November.

“The Canadian data if anything should have made the currency weaker to some extent ... but it was definitely overshadowed by the firmer U.S. data,” said Mark Chandler, head of fixed income and currency strategy at RBC Capital Markets. “At least for now that sort of risk-on appetite has been a good thing for the Canadian dollar.”

The Canadian dollar ended the North American session at C$0.9857 against the U.S. dollar, or $1.0145, stronger than Wednesday’s North American session close at C$0.9861, or $1.0141. However, it still remained fairly range-bound, trading in a narrow band between C$0.9843-87.

“We’re being told from some of our traders as well that the corporate interest is reasonable. It’s not exceptionally light today, but trading down to (C$0.9843) still keeps in well inside the last four to five days’ trading range,” said Amo Sahota, director at Klarity FX in San Francisco.

Canadian manufacturing data on Friday could provide further direction.

RBC sees near-term Canadian-dollar resistance around C$0.9826 and support near C$0.9926.

Looking forward to later this year, RBC’s Chandler expects markets to see fewer kneejerk reactions to U.S. data from the Canadian dollar.

“If the world gets to be a better place you might see a bit more differentiation, where stronger U.S. data isn’t necessarily better for the Canadian dollar than it is for the U.S. dollar, which never really makes too much sense,” he said.

The Canadian dollar rallied to a more than two-year high against the yen at 91.33 yen, tracking a similar move in the U.S. dollar on news of potential measures being planned by the Bank of Japan to resuscitate the country’s sluggish economy.

Meanwhile, the currency weakened to a nine-month low of C$1.3214 against the euro, or 75.68 euro cents, as a strong bond auction in Spain and Portugal’s possible return to the fixed-income market appeased worries about Europe’s three-year-old debt crisis.

Canadian bond prices retreated across the curve as riskier assets came into favor. Canada’s two-year bond fell 6 Canadian cents to yield 1.198 percent, while the benchmark 10-year bond dropped 50 Canadian cents to yield 1.948 percent.

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