CANADA FX DEBT-C$ in "open water" after breaking 3-year high

Fri Apr 1, 2011 2:18pm EDT
 
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   * C$ firms to C$0.9626, or $1.0389, highest since Nov, 2007
 * No technical barriers seen between new levels, '07 high
 * Bonds mostly fall as investors shed safe-haven assets
 * US employment jump boosts BoC rate hike expectations
 (Updates with more details, comment)
 By Solarina Ho
 TORONTO, April 1 (Reuters) - Canada's dollar charted fresh
three-year highs against the U.S. currency on Friday, braced by
soaring oil prices and a robust U.S. jobs report that
underpinned hopes of a definitive economic recovery.
 The currency CAD=D4 touched its highest level since
November 2007, hitting C$0.9626 to the U.S. dollar, or $1.0389,
after data showed U.S. nonfarm payrolls notched a second
straight month of solid gains in March. [ID:nOAT004775]
 Some analysts thought the report marked a decisive shift in
the U.S. labor market that should strengthen the economy of
Canada's largest trading partner. It was also seen boosting the
likelihood of Canadian rate hikes, which could attract capital
flows.
 "From a technical point of view, there isn't any real
notable levels between here and C$0.9060, so it's quite a lot
of open water here now," said Shaun Osborne, a chief currency
strategist at TD Securities.
 At 1:06 p.m. (1706 GMT), the Canadian currency CAD=D4
stood at C$0.9640 to the U.S. dollar, or $1.0373, up from
Thursday's close of C$0.9696 to the U.S. dollar, or $1.0314.
 Highflying energy prices drove the Canadian dollar to a
modern-day high of C$0.9059, or US$1.1039 in November 2007,
according to Thomson Reuters dealing data. But a sell-off in
commodities following the global financial crisis sent the
currency plunging 18.6 percent the following year.
 Oil, a major Canadian export, provided solid support for
the commodity-linked Canadian dollar on Friday, though trading
was volatile. The unexpectedly strong data also triggered the
possibility of a pull back from loose monetary policy and a
stronger U.S. dollar. Fighting in Libya, an OPEC producer,
remained a rallying point. [O/R]
 "The technicals still favor a higher Canada. I think it
will be a slow grind higher based on the strong oil prices and
prospects of global recovery, which will get more traction I
think ... because of the U.S. employment data," said Michael
O'Neill, managing director at Knightsbridge Foreign Exchange.
 TD Securities' Osborne saw some U.S. dollar support at
around C$0.9625 to C$0.9630 in the very near term. He noted the
C$0.9715 to C$0.9750 collection of lows hit in late 2007 and
early 2008 were the "last line of defense" from a technical
point of view.
 "It's going to be quite a struggle to get back above the
low to mid C$0.9700 range," said Osborne. "I think the C$0.9750
area is probably going to be quite pivotal for USD/CAD from a
medium to longer term point of view."
 He noted that a move back toward that range could delay or
forestall further strength in the Canadian dollar, but that
appeared to be a challenge for the markets at the moment, with
the underlying trend momentum still quite strong.
 RATE HIKE EXPECTATIONS FIRM
 Canadian bond prices were mostly lower, as investors shed
safe-haven assets for stocks and other riskier bets. They
underperformed U.S. Treasuries, which rose after a top U.S.
Federal Reserve official said he saw no reason to alter course
on monetary policy despite the employment data. [US/]
 Swap markets showed traders pricing in a higher likelihood
of Canadian interest rate hikes at every policy-announcement
date from May 31 to Dec 6, with the odds of a September rate
hike fully priced in.
 Traders maintained bets that there is almost no chance the
central bank will raise rates in April. Odds of a May hike were
also seen as low. BOCWATCH
 The two-year bond CA2YT=RR fell 3 Canadian cents to yield
1.845 percent, while the 10-year bond CA10YT=RR lost 20
Canadian cents to yield 3.378 percent.
 (With additional reporting by Ka Yan Ng; editing by Jeffrey
Hodgson)