CANADA FX DEBT-C$ swings higher after Wednesday's sharp drop

Thu May 23, 2013 5:02pm EDT
 
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* C$ ends at C$1.0294 vs US$, or 97.14 U.S. cents
    * Sharp swing in yen create havoc elsewhere
    * Weak China data, Bernanke's easing comments add to worry
    * N. American stocks recover some losses, help risk
currencies

    By Alastair Sharp
    TORONTO, May 23 (Reuters) - The Canadian dollar won some
respite from its recent decline against its U.S. counterpart on
Thursday, a day after it sank to an almost 12-month low, as the
market brushed off weak Chinese economic data and the
possibility of a reduction in U.S. stimulus.
    While major North American equity markets closed lower, most
of them finished the day off their session lows as investors saw
the early fall from record highs as an opportunity to buy. 
    The Japanese yen rallied sharply against the U.S. dollar and
the euro after a shock drop in Chinese factory data hurt Asian
and European stock markets, and the Canadian currency went along
for the ride.
    "The main story today was the ability of equity markets to
get back some of their losses, and that would be consistent with
the improvement we saw in some of the riskier currencies, Canada
included," said Mark Chandler, head of Canadian fixed income and
currency strategy at Royal Bank of Canada.
    The Swiss franc, seen as a safe bet in uncertain times, 
rose as well.
    The gains, which brought the Canadian currency back below
C$1.03 to the greenback after nearing C$1.04 on Wednesday, could
be overshadowed on Friday and early next week as the market
looks ahead to a Bank of Canada policy announcement the middle
of next week and first-quarter gross domestic product figures
next Friday.
    "The extent of any gains in the Canadian dollar are going to
be somewhat limited, at least until we get over the hump of the
(Bank of Canada) meeting," Chandler said.
    The loonie, as the Canadian currency is colloquially known,
had fallen almost four cents since it neared parity with the
greenback in early May.
    It ended on Thursday at C$1.0294, or 97.14 U.S. cents, after
ending Wednesday's North American session at C$1.0372 to the
greenback, or 96.41 U.S. cents.
    The loonie gained marginally against the Australian dollar
, another commodity currency, but one that is more
closely tied to the fortunes of China due to its geographical
proximity.
    A preliminary survey of manufacturing in May in China, the
world's second largest economy, showed it shrank for the first
time in seven months. 
    European factory sentiment dropped, suggesting that the euro
zone's economy was likely to contract again in the second
quarter. 
    Meanwhile, comments on Wednesday by U.S. Federal Reserve
chairman Ben Bernanke that Fed stimulus measures could be scaled
back also added to investor caution worldwide.
    "The Canadian dollar is caught in a nasty move in global
markets," said Adam Button, currency analyst at ForexLive in
Montreal.
    He said correlations between asset classes had broken down
and investors were struggling to guess where markets go from
here.
    "It's walking on a razor's edge right now. It's 24 hours of
fright, after three months of exuberance," Button said. "It
could prove to be a turning point, or a blip. At this point, I
lean more toward a turning point, and continued Canadian dollar
weakness."
    Prices for Canadian government debt were mixed, with the
two-year bond down less than a cent to yield 1.036
percent, while the benchmark 10-year bond added 5
Canadian cents to yield 1.964 percent.