CANADA FX DEBT-C$ firms as data signals recovery strength

Wed Feb 2, 2011 5:40pm EST
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   * 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     
 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.
 "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
 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]
 Canada's C$3 billion auction of 10-year bonds on Wednesday
met with decent demand, but was slightly weaker than the last
 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:
 Also see:
 (Access may depend on subscriber level)
 (Editing by Peter Galloway)