CANADA FX DEBT-C$ firms but rising oil loses some punch

Wed Mar 2, 2011 5:16pm EST
 
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 * C$ rises to $1.0284 against U.S. dollar
 * Bond prices lower across the curve
 * Five-year bond auction meets decent demand
 * Reuters poll shows C$ to return to US$ parity in a year
 By Ka Yan Ng
 TORONTO, March 2 (Reuters) - The Canadian dollar rose
slightly against its U.S. counterpart on Wednesday, and
reverted to trading in a tight range as support from stronger
oil prices lessened.
 The Canadian currency CAD=D4 finished at C$0.9724 to the
U.S. dollar, or $1.0284, up from Tuesday's North American close
of C$0.9749 to the U.S. dollar, or $1.0257.
 Oil, a major Canadian export, provided some support as
crude oil prices climbed on warnings by Libya that prices would
rise and as government forces fought rebels. U.S. and Brent
crude were both firmly above $100 a barrel. [O/R]
 But the influence of climbing oil prices appeared to be
waning due to fears that too-strong crude prices could choke
the global economic recovery.
 "Oil prices in excess of $100 a barrel (are) not
necessarily supportive for the Canadian dollar because it has
negative implications for global growth and people don't
believe these prices are sustainable above this point," said
Shaun Osborne, chief currency strategist at TD Securities.
 "So even with the WTI looking quite well supported...it's
not necessarily translating into new highs for the Canadian
dollar here."
 With little economic data immediately ahead, the Canadian
currency is expected to be fairly range-bound, said David
Bradley, director of foreign exchange trading at Scotia
Capital. He put the currency's range between C$0.9700 and
C$0.9800 for the rest of the week.
 "I think there's probably still plenty of interest on the
top side around C$0.98 by sovereign-reserve types to buy
Canadian dollar to diversify their foreign exchange holdings,"
Bradley said.
  A Reuters poll on Wednesday showed market players expect
the currency will not hold onto its gains as its strength
undermines Canada's export-oriented economy.
 Median forecasts in the poll of foreign-exchange
strategists have the Canadian dollar easing to C$0.98 to the
U.S. dollar in a month's time, before gradually falling back to
par with the greenback a year from now. [ID:nN02221448]
 AUCTION MEETS WITH DECENT DEMAND
 Canadian bond prices were lower across the curve, while an
auction of five-year bonds met with solid demand.
 Canada's C$3.2 billion auction of bonds due 2016 met with
decent demand as the belly of the curve was still attracting
interest with the Bank of Canada likely to keep its key
interest rate steady for a while longer. [ID:nN02246338]
 "The Bank of Canada met this week and signaled continued
patience with policy. That's been supportive for the front of
the curve and the belly of the curve. It was a supportive
factor for today's auction," said Fergal Smith, managing market
strategist at Action Economics.
 Market players have trimmed expectations for a rate hike at
the central bank's next three policysetting dates -- in April,
May and July. The median view suggests that May will be when
the Bank of Canada resumes tightening, according to a Reuters
poll last week. [CA/POLL]
 Overnight index swaps, which trade based on expectations
for the key central bank rate, imply a fully priced-in rate
increase on the bank's Sept. 7 decision date. BOCWATCH
 The two-year bond CA2YT=RR slipped 8 Canadian cents to
yield 1.829 percent, while the five-year bond CA5YT=RR fell
20 Canadian cents to yield 2.647.
 In new issues, Bank of Montreal BMO.TO sold C$1.5 billion
of medium-term notes, while the province of Nova Scotia sold
C$400 million of 10-year notes, according to a term sheets seen
by Reuters on Wednesday. [ISU-CAN]
 (Additional reporting by Solarina Ho; editing by Peter
Galloway)