CANADA FX DEBT-C$ rallies on rebounding risk appetite
* C$ closes at 95.06 U.S. cents
* Bonds fall, risk appetite up on economic data
* Canada C$1.4 bln bond due 2041 yields 3.489 pct (Updates to close, adds details, quotes)
By Claire Sibonney
TORONTO, Sept 1 (Reuters) - Canada's dollar jumped more than a penny against the greenback on Wednesday, while bond prices fell, as risk appetite rose on strong economic data that soothed investor fears about the lagging recovery.
A manufacturing rebound in China and stronger than expected U.S. factory figures spurred a rally in equity and commodity prices worldwide, helping start the month on a bright note after a sour August. [MKTS/GLOB]
The reports offered some good news for investors to digest after a recent string of weak data, and easily offset a U.S. report on Wednesday that showed an unexpected cut in private-sector jobs. [ID:nWEN9253]
"Commodity prices, particularly crude oil prices, were doing quite well and really quite a strong day in equities so it feels more of a risk-on kind of environment, even though we had some mixed numbers this morning," said Shaun Osborne, chief currency strategist at TD Securities.
As well, manufacturing activity in the euro zone expanded for 11 months in a row, although the pace of growth slowed, while Australia's economy grew at its fastest pace in three years. [ID:nSLAVJE6B9] [ID:nSGE67U0L3]
The Canadian currency CAD=D4 rose as high as C$1.0485 to the U.S. dollar, or 95.37 U.S. cents, up sharply from C$1.0665 to the U.S. dollar, or 93.76 U.S. cents, at Tuesday's close.
It finished the North American session at C$1.0520 to the U.S. dollar, or 95.06 U.S. cents.
The currency's push higher comes on the heels of a 3.6 percent decline last month.
Osborne said the Canadian dollar is still trading in a tight range however, between support at around C$1.0450-75 and resistance at C$1.0665-70.
No more domestic economic reports are due this week, leaving market players to consider how external data will influence the Bank of Canada heading into next week's rate decision.
The next key indicator will be Friday's closely watched U.S. government non-farm payroll numbers for August, which are seen falling for a third straight month. [ID:nN31235915]
Despite the loss in U.S. private-sector jobs, Osborne noted that one of the strongest components of U.S. manufacturing data was the employment subindex, underscoring the conflicting economic data and resulting uncertainty in the market.
"It's very contradictory evidence about what those job numbers might bring," he said, although downside risk was the most likely scenario.
The Bank of Canada's Sept. 8 rate decision is one of the closest calls in some time, with market pricing, as measured by a Reuters calculation of yields on overnight index swaps, roughly split between a quarter-point rate hike or a no change in interest rates BOCWATCH.
However, most of Canada's primary securities dealers, surveyed by Reuters on Tuesday, still forecast the central bank will raise its key rate by a quarter point to 1.0 percent. But they also forecast the rate increase will be the last of 2010 because of the slowing economy. [ID:nN31267387]
BONDS DRIFT LOWER
With renewed investor optimism and riskier assets back on the table, Canadian government bond prices slumped, tracking U.S. Treasury prices lower. [US/]
Canada's two-year bond CA2YT=RR fell 11 Canadian cents to yield 1.267 percent, while the 10-year issue CA10YT=RR dropped 68 Canadian cents to yield 2.854 percent.
Elsewhere, the Bank of Canada said its C$1.4 billion auction of 4.0 percent government of Canada bonds due June 1, 2041 produced an average yield of 3.489 percent. [ID:nTOR007782]
"It was relatively well received," said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets.
"It helped that yields backed up so much prior to the auction, but in general Canada has underperformed relative to the U.S. over the last little while, so there were people that were looking for opportunities to go long Canadian assets." (Additional reporting by Jennifer Kwan and Ka Yan Ng; editing by Rob Wilson)
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