CANADA FX DEBT-C$ firms as data signals recovery strength
* C$ firms to C$0.9982, or $1.0119
* Bonds end mixed
* Focus on Friday's North American employment data (Updates with details, comments)
By Solarina Ho
TORONTO, Feb 2 (Reuters) - The Canadian dollar closed modestly higher against its U.S. counterpart on Wednesday after hitting its highest level in two weeks early in day as new data signaled global economic recovery was gaining traction.
U.S. private-sector employment data showing that employers added more jobs than expected in January was the latest evidence that the recovery was gaining strength. [ID:nN02187589] [MKTS/GLOB]
The Canadian currency CAD=D4 finished the session at C$0.9982 to the U.S. dollar, or $1.0119, up from Tuesday's North American finish of C$0.9909 to the U.S. dollar, or $1.0092. Early in the day, it hit a two week high of C$0.9860.
"That move has waned over the course of the day as stocks have done very little and commodity prices are about flat as well," said Benjamin Reitzes, an economist at BMO Capital Markets.
The market continued to generally shrug off the uprising in Egypt even though there were clashes between supporters and opponents of President Hosni Mubarak on Wednesday. [ID:nLDE71100I]
"The market's taken everything in stride, and digested what's going on, and we have seen some marginal improvements in the risk backdrop," said George Davis, chief technical strategist at RBC Capital Markets.
Worries that the unrest could spread to other countries in the region or disrupt traffic in the Suez Canal continued to provide some support for crude prices, a positive for the Canadian currency because oil is a key Canadian export. [O/R]
Market focus was on Canadian and U.S. employment figures for January, to be released on Friday. In Canada, employers are seen adding 15,000 jobs, while the unemployment rate is expected to hold steady at 7.6 percent. [ID:nN28144465]
Hiring in the United States was seen gathering steam, but severe snowstorms that hit large swaths of the country could be a wild card. [ID:nN0187135]
"(The data) will go a long way in terms of confirming to the market whether their bullish sentiment vis-a-vis the Canadian dollar is warranted or not," Davis said.
"Even if we do happen to get negative numbers or bad numbers on Friday and we do see the Canadian dollar weaken a little bit ... the market's going to view that as an opportunity to buy the Canadian dollar at cheaper levels."
Davis said he expects to see some downside risk for the U.S. dollar over the next couple of weeks.
"From a technical standpoint, we have broken below some support at C$0.9910 and I think that is now starting to indicate that perhaps this retracement phase we've been in since Jan. 18 is starting to come to a close and certainly lose momentum."
A Reuters poll of 49 currency strategists released on Wednesday projected the Canadian dollar will remain near parity with the U.S. dollar this year, though slightly softer than current levels. [ID:nN02243460]
10-YEAR BOND AUCTION SEES DECENT DEMAND
Canada's C$3 billion auction of 10-year bonds on Wednesday met with decent demand, but was slightly weaker than the last auction.
Bids totaled C$6.83 billion, resulting in a bid-to-cover ratio of 2.28, softer than the 2.38 of the previous auction. The ratio is a measure of investor demand and a reading above 2 generally indicates a satisfactory auction.
The sale of C$3 billion of the 3.250 percent government bond due June 1, 2021, produced an average yield of 3.482 percent, up from 2.836 at the previous auction in October.
The outstanding debt of the issue totals C$9 billion. The Bank of Canada said it bought C$450 million of the issue for itself and on behalf of its clients.
The bonds will be issued on Feb. 7, 2011.
By late afternoon, Canadian bond prices were mixed across the curve, though mostly lower. In the United States, rising food and energy costs fed inflation worries and spurred losses in the Treasuries market for a third straight session. [US/]
The two-year bond CA2YT=RR was down 7.5 Canadian cents to yield 1.750 percent, while the 10-year bond CA10YT=RR lost 23 Canadian cents to yield 3.380 percent.
"The problem right now is the U.S. bond market is not trading very well," said Davis.
"The auction came out and went fairly well, but people kind of took that as an opportunity to glare into some short positions in the aftermath of the auction. So very similar to the U.S. dollar, the bond markets in general are trading with a defensive posture as we head into Friday's numbers."
Details on Bank of Canada webpage:
(Access may depend on subscriber level) (Editing by Peter Galloway)
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