March 15, 2012 / 8:29 PM / 6 years ago

CANADA FX DEBT-Canadian dollar edges up on U.S. growth story

* C$ ends at C$0.9922 vs US$, or $1.0079

* Bond yields reach 2012 highs

By Claire Sibonney

TORONTO, March 15 (Reuters) - The Canadian dollar nudged higher against its U.S. counterpart on Thursday as a run of U.S. economic data lifted riskier assets and easing U.S. Treasury yields reduced some of the appeal of the greenback.

Canada’s role as the largest U.S. trading partner has recently helped it outperform other major currencies as healthy U.S. data and a more optimistic economic tone from the Federal Reserve have boosted North American sentiment.

“You have the North American trade that’s going on right now. The Canadian dollar is the second beneficiary and sometimes even the No. 1 beneficiary of strong U.S. growth,” said Adam Button, currency analyst at Forexlive in Montreal.

The Canadian dollar has also been closely correlated with the U.S. stock market.

“For some time you’ve had the Canadian dollar being driven by risk sentiment and that has largely been gauged against the S&P 500,” said Mazen Issa, macro strategist at TD Securities.

The S&P 500 index topped the 1,400 mark on Thursday for the first time since the 2008 financial crisis, after data showed the number of Americans claiming new jobless benefits fell to a four-year low last week and manufacturing activity in the Northeast picked up this month.

The Canadian dollar ended the North American session at C$0.9922 versus the U.S. currency, or $1.0079, up slightly from Wednesday’s North American session close at C$0.9930 versus the U.S. dollar, or $1.0070.

Button noted that, earlier in the day, the Canadian dollar met significant support around C$0.9950, but quickly bounced back, a sign of underlying demand for the currency.

Bond yields rose above their yearly highs set on Wednesday as risk appetite improved. Canada’s bonds most underperformed U.S. Treasuries with U.S. shorter-dated yields dipping on the expectation the Fed was likely to hold interest rates near zero at least through this year.

The two-year bond was down 7 Canadian cents to yield 1.276 percent, while the 10-year bond dropped 49 Canadian cents to yield 2.210 percent.

“I would expect Canadian bonds to continue to underperform as we back away from this idea of QE3 in the United States and move toward rate hike talk in Canada,” said Button.

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