CANADA FX DEBT-C$ hits 8-wk high as US$ slides after Fed comment

Fri Oct 1, 2010 4:42pm EDT
 
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   * C$ ends higher at 97.99 U.S. cents
 * Up 0.5 pct for the week
 * US$ slides on expectations of further Fed action
 * Bonds prices soft after firm data, Thursday gains
 (Updates to close, adds quote)
 By Jennifer Kwan
 TORONTO, Oct 1 (Reuters) - Canada's dollar rose to its
loftiest level in eight weeks against the U.S. currency on
Friday, as the greenback slid on comments by a U.S. Federal
Reserve official that raised expectations of a further easing
of monetary policy.
 The Canadian dollar CAD=D4 soared as high as C$1.0188 to
the U.S. dollar, or 98.15 U.S. cents, its strongest level since
Aug. 6, as the U.S. currency tumbled to a six month low against
the euro.
 The greenback fell after William Dudley, president of the
New York Fed, said more action by the central bank to boost
growth will likely be warranted unless the outlook improves.
 For more details, see: [FRX/] [ID:nN30290786] For Dudley's
comments, see [ID:nNLL1LE6II].
 "It is a U.S. dollar weakness story more than anything
else. The reason for that weakness is that quantitative easing
is very much on the table right now," said Eric Lascelles,
chief Canada macro strategist at TD Securities.
 Quantitative easing would expand the Fed's balance sheet
through the buying of government Treasuries, a policy intended
to stimulate spending and investments that have been lacking
due to high unemployment and economic worries.
 The currency ended the day at C$1.0205 to the U.S. dollar,
or 97.99 U.S. cents, comfortably higher from Thursday's
finished at C$1.0290 to the U.S. dollar, or 97.18 U.S. cents.
 The Canadian dollar was up 0.5 percent for the week.
 The weaker U.S. dollar aided oil and gold prices higher,
another area of support for the Canadian currency. [O/R]
[GOL/]
 Also supportive of the Canadian currency were gains in
equity markets, boosted in part by Chinese manufacturing data
and some U.S. economic reports. [.N]
 However, Jack Spitz, managing director of foreign exchange
at National Bank Financial, noted the domestic currency has
recently lagged against major crosses on lowered market
expectations the Bank of Canada will hike rates in October.
 The Canadian dollar EURCAD=R touched its weakest level
versus the euro since early March on Friday.
 Markets are pricing in an 89 percent probability the bank
will hold rates steady on Oct. 19, based on a Reuters
calculation using overnight index swaps.BOCWATCH
 That sentiment was supported by a string of recent domestic
economic data and the Bank of Canada Governor Mark Carney, who
said on Thursday record high household-debt levels and a soft
U.S. export market mean modest economic growth for Canada in
the months ahead, suggesting further interest rate hikes will
likely be delayed. [ID:nN30286204]
 Still, "we were kind of due for a day like this" given the
currency's recent performance, said Shane Enright, executive
director, foreign exchange sales at CIBC World Markets.
 "Oil has been strong, equity markets have been positive,"
said Enright. He added the next key technical levels to watch
for include C$1.01 and C$1.0120 to the U.S. dollar.
 BONDS LOWER
 Canadian government bond prices were flat to lower, along
with U.S. Treasury prices, which fell as traders digested
improved U.S. economic data and the message from the Fed
official. [US/]
 TD's Lascelles said the sell-off partly reflects a reversal
of gains seen the day before after soft domestic growth data
and Carney's dovish commentary.
 "The pessimism is not as pervasive," he said.
 Lascelles added it's the first day of the month and quarter
and some money managers may be rebalancing portfolios, which
could mean pushing the flow of money to equities rather than
bonds.
 The two-year bond CA2YT=RR sagged 1 Canadian cent to
yield 1.372 percent, while the 10-year bond CA10YT=RR fell 30
Canadian cents to yield 2.792 percent.
 (Editing by Jeffrey Hodgson)