CANADA FX DEBT-Canada dollar gains as U.S. data lifts confidence

Mon Feb 1, 2010 5:12pm EST
 
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 * C$ higher at 94.13 U.S. cents
 * Recovers from six-week low hit overnight
 * Bonds hit by strong U.S. data, Canada outperforms
 (Updates to close, adds quotes)
 By Claire Sibonney
 TORONTO, Feb 1 (Reuters) - The Canadian dollar strengthened
on Monday, rising off a six-week low against the U.S. currency
in the overnight session, as data showing a jump in U.S.
manufacturing fueled investor appetite for riskier assets.
 The Canadian currency appreciated for the first time in 10
sessions, mirroring gains in commodity and equity markets,
which rose partly on news that U.S. manufacturing expanded in
January at its fast pace since 2004. [ID:nN01186177]
 "The risk aversion play which saw a lot of investors move
back into the U.S. dollar in recent weeks may be abating as
there are more signs of improving growth not only in the United
States but probably in Canada as well," said Aron Gampel,
deputy chief economist at Scotiabank.
 Gampel added that recent fears over emerging markets such
as China tightening monetary policy has been largely
overplayed.
 The Canadian dollar finished the North American session at
C$1.0624 to the U.S. dollar, or 94.13 U.S. cents, according to
the official Bank of Canada close. On Friday, it closed at
C$1.0693 to the U.S. dollar, or 93.52 U.S. cents.
 Overnight, the currency weakened to C$1.0722 to the U.S.
dollar, or 93.27 U.S. cents, its weakest since Dec. 18. But it
edged off that low as U.S. and Canadian stocks rose and the
price of oil firmed, showing risk appetite was on the rise.
[O/R]
 "The outlook is still one of optimism...as long as we have
the emerging markets remaining in a relatively strong growth
mode commodity prices are likely to still remain well bid,"
Gampel said.
 Gold rose 2 percent, posting its biggest daily gain in
three months, as a combination of the oil rally, dollar
weakness and strong U.S. data boosted bullion's investment
appeal. [GOL/]
 "Going forward it's going to depend on what equity markets
do from here. If the rally continues to build I think we'll
continue to see the Canadian dollar strengthen and vice versa,"
said George Davis, chief technical strategist at RBC Capital
Markets.
 The data calendar for Canada is empty until Thursday when a
report on building permits for December and a gauge of
purchasing activity for January are due. But the main focus
will be on Friday when market players look for further evidence
of an economic recovery in the Canadian and U.S. jobs data.
ECONCA.
 CANADA DEBT OUTPERFORMS
 Canadian bonds were flat to slightly lower alongside their
sliding U.S. counterparts after the morning's strong
manufacturing data boosted riskier assets.
 The two-year bond CA2YT=RR was unchanged at C$100.34 to
yield 1.33 percent, while the 10-year bond CA10YT=RR fell 28
Canadian cents to C$102.90 to yield 3.38 percent.
 Canadian government bonds outperformed U.S. Treasuries
across the curve, with the yield on the Canadian 10-year bond
28 basis points below its U.S. counterpart, compared with 24
basis points on Friday.
 "No matter where you look right now everyone seems to be
liking Canada for a variety of reasons, whether it's the
commodity play or whether it's the multi-year period where
fiscal imbalances have been performing better than they have in
other countries," said Gampel.
 "The level of indebtedness in this country by any measure
is going to be less that the United States."
 Gampel said as private sector credit demand begins to
increase and central banks begin to raise rates then yields
should start rising, but not for now.
 (Reporting by Claire Sibonney; Editing by Jeffrey Hodgson)