CANADA FX DEBT-C$ slips vs US$ after Fed's hint at end to easing

Thu May 16, 2013 4:44pm EDT
 
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* C$ C$1.0192 vs US$, or 98.12 U.S. cents
    * Fed hint adds to bullish bets on U.S. recovery
    * Canada dollar gets some benefit from proximity to U.S.
    * Worries linger in daily data flow; jobless claims and home
starts
    * Bond prices higher across the curve

    By Alastair Sharp
    TORONTO, May 16 (Reuters) - The Canadian dollar lost steam
against its U.S. counterpart on Thursday after a top Federal
Reserve official said a good outlook on jobs meant the U.S.
central bank might scale back on its monetary easing as early as
this summer.
    The comments provoked a strong reaction in currency and bond
markets, with 10-year U.S. Treasuries bouncing
higher and the greenback gaining against most major currencies
 and particularly those tied to commodity-based economies.
    The Canadian dollar's slip was not as forceful as that
suffered by the Australian, which has fallen 5 percent so far
this month. 
    The prospect of an end to the Fed's asset-buying program
further bolstered a view that the United States is on track for
a faster recovery than recession-addled Europe, and side-swiped
any concerns over weak data. 
    "Even after all the disastrous U.S. data that came out today
... it looks like a lot of the currencies are going to be
unchanged," said David Bradley, director of foreign exchange
trading at Scotiabank.
    "The market is in that mode right now. Anything that's good
for the U.S., data-wise or (anything that) looks as though there
is going to be an end to the slowdown is positive for the U.S.
dollar," Bradley said.
    The policy of buying $85 billion in Treasuries and other
assets every month is designed to keeps borrowing costs low and
encourage business hiring. 
    The trend in U.S. data has been improving, but the
trajectory was upset by some wrinkles in Thursday's prints.
    U.S. jobless claims rose sharply last week, a sign of a
weaker labor market, while ground-breaking at home construction
sites tumbled in April and a gauge of underlying inflation
pointed to weak demand. 
    The U.S. economy has shown signs that growth slowed late in
the first quarter and in April as Washington's push to trim the
budget deficit weighed on consumers and businesses.
    "The market is not really focused on what's going on in
Canada right now," said Greg Moore, currency strategist at TD
Securities. "Essentially it's all about the U.S."
    Despite the softer-than-forecast data, Moore said compared
to some of its peers, the United States is still a growth story
and the Canadian economy is seen benefiting more so than other
economies from overall U.S. strength.
    The loonie has underperformed the greenback for most of this
week, as the U.S. currency has been bid on across the range of
major currencies.
    It ended the North American session trading at
C$1.0192 to the greenback, or 98.12 U.S. cents, compared with
C$1.0172, or 98.31 U.S. cents, at Wednesday's close. Earlier,
the currency had weakened to C$1.0208, or 97.96 U.S. cents.
    The loonie, as Canada's currency is colloquially known, was
stronger against its commodity counterparts, the Australian
 and New Zealand dollars. It touched its
strongest level against the Aussie since October last year and
its strongest against the Kiwi since early February.
    Friday's Canadian inflation data will be the domestic
highlight for this week. Economists polled by Reuters are
expecting no growth for the month of April. 
    "It fits in with the global story as well that you're seeing
all kinds of inflation measures in developed economies all over
the world disappoint, or below what anybody had been expecting,"
said Moore.
    The price of Canadian government debt rose across the curve
of maturities, with the two-year bond up 3.4 Canadian
cents to yield 1.010 percent, while the benchmark 10-year bond
 jumped 35 Canadian cents to yield 1.885 percent.