CANADA FX DEBT-C$ rises as Greece deal boosts risk play

Mon May 3, 2010 4:38pm EDT
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article
[-] Text [+]

 * C$ at C$1.0106 or 98.95 U.S. cents
 * Bonds lower across the curve
 By Claire Sibonney
 TORONTO, May 3 (Reuters) - Canada's dollar rose against its
U.S. counterpart on Monday as investors piled back into riskier
assets, including currencies that feed off global growth, after
a deal to rescue debt-stricken Greece brought some relief from
worries about sovereign debt risks in the euro zone.
 European countries over the weekend agreed to a 110 billion
euro ($146.5 billion) aid package for Greece, the biggest
financial bailout of a country in history.
 But lingering doubts about Greece's ability to honor its
pledge to introduce drastic wage cuts in return for the aid
package knocked the euro lower against the safe-haven
greenback.
 "In currency markets, the overall move was renewed weakness
in the euro but for the rest of the world, risk appetite was
actually improved," said Mark Chandler, head of Canadian fixed
income and currency strategy at RBC Capital Markets.
 "The Europeans are going to have to struggle to pay for the
Greek bailout, but the Greek bailout in and of itself is good
for risk appetite generally."
 J.P. Blais, vice president foreign exchange products at BMO
Capital Markets, also expressed measured optimism.
 "There's still a lot of stuff that needs to happen before
the Greece bailout is all said and done, but it's slowly but
surely pointing to the fact that they're going to get it done,"
he said.
 U.S. data that showed the manufacturing sector grew in
April at its fastest pace in almost six years, and a rise in
consumer and construction spending added to market confidence
about moving away from the U.S. dollar. [ID:nN03193333]
 Further supporting the commodity-linked currency, crude
prices hit an intraday level above $87 a barrel, their highest
level since October 2008, and gold prices rallied to a
five-month high. [O/R] [GOL/]
 "Commodities are still generally on an uptrend," Chandler
said.
 "There were efforts by China over the weekend as well to
try to continue to curb growth there but I think markets are
pretty sanguine about that," he added, referring to China's
move to tighten its bank reserve requirement ratio by 50 basis
points, its third increase of that magnitude this year.
 "They're more taking from it the fact that growth remains
quite strong in China."
 The Canadian dollar CAD=D4 finished the North American
session at C$1.0106 to the U.S. dollar, or 98.95 U.S. cents, up
from Friday's finish of C$1.0158 to the U.S. dollar, or 98.44
U.S. cents.
 Chandler said parity with the U.S. dollar is still very
much in focus in the near term.
 "We see it very tightly around that level for the most
part, but still with the bias towards a stronger Canadian
dollar at least through mid-year."
 BONDS FLAT AS DATA, GREECE WEIGH
 Canadian bond prices were little changed across the curve
as U.S. Treasuries fell after investors began to unwind
defensive positions taken last week at the height of the latest
episode of the Greek debt crisis.  [US/]
 "A relatively strong equity market and the data today was
mostly favorable ... so that's putting pressure on yields (in
the United States)," Chandler said.
 The two-year Canadian government bond CA2YT=RR was up 2
Canadian cents to C$99.305 to yield 1.888 percent, while the
10-year bond CA10YT=RR fell 5 Canadian cents to C$98.700 to
yield 3.656 percent.
 Canadian government bonds mostly outperformed U.S. issues,
with the 10-year yield 4.1 basis points below its U.S.
counterpart, compared with around 0.9 basis points the previous
session.
 (Additional reporting  by Jennifer Kwan; editing by Peter
Galloway)