CANADA FX DEBT-C$ weakens as oil price drops, bonds tumble

Thu Mar 3, 2011 1:53pm EST
 
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   * C$ eases to $1.0273 vs greenback
 * Bond prices slide with U.S. Treasuries on jobs data
 * Election risk may weigh on C$ in weeks ahead
 (Updates to early afternoon)
 By Ka Yan Ng
 TORONTO, March 3 (Reuters) - A retreat in oil prices pushed
the Canadian dollar a bit lower against its U.S. counterpart on
Thursday afternoon but it didn't stray from a tight trading
range.
 Market focus moved off the Canadian currency and on to the
European Central Bank after comments by ECB President
Jean-Claude Trichet reinforced expectations of a near-term
interest rate rise, sparking a rally in the euro. [FRX/]
[ID:nLDE7221RF]
 As well, the price of oil, a key Canadian export, fell and
undermined the currency after Venezuela said its proposal for a
negotiated solution to the Libyan conflict was accepted by the
North African government, and the Arab League said the plan was
being considered. [O/R]
 The Canadian dollar briefly fell as low as C$0.9754 to the
U.S. dollar, or $1.0252, but quickly returned to trade a
handful of ticks below Wednesday's close. Overall, the currency
was in a 37-point range, narrower than the previous session.
 At 1:15 p.m. (1715 GMT), the currency CAD=D4 was at
C$0.9734 to the U.S. dollar, or $1.0273, down from Wednesday's
North American finish of C$0.9724, or $1.0284.
 "We're sitting back with our sunglasses on and everyone is
leaving (the Canadian dollar) alone. Everything else seems to
be moving around it. It may take a while to break below this
C$0.97 level firmly," said John Curran, senior vice president
at CanadianForex.
 The Canadian dollar has largely been moving between C$0.97
and C$0.98 for the last five sessions, with brief forays
outside. It may trade for the rest of Thursday between its
recent high of C$0.9684 and Wednesday's low of C$0.9776, said
Camilla Sutton, chief currency strategist at Scotia Capital.
 The Canadian dollar could come under pressure in the weeks
ahead as election talk swirls around the federal budget, due
March 22. The three opposition parties in the House of Commons
will have to decide whether to support the minority
Conservative government's budget or risk facing an election.
[ID:nN02223480]
 "If at all, what you might see is a bit of negativity
towards Canada due to the upcoming budget," Curran said. "It
could get some political risk into the currency but other than
that, it's still a pretty good story for Canada. That's
probably why we're just hanging out here."
 BONDS EYE U.S. JOBS DATA
 Canadian bond prices fell across the curve following the
lead of their U.S. counterparts, hurt by a stock market rally
that drew investors away from safe-haven government debt.
 A sharp drop in weekly U.S. jobless claims to a 2-1/2-year
low helped to buoy stock market sentiment ahead of Friday's
U.S. nonfarm payrolls data.
 Those figures will be an important signal as the market
looks for signs that U.S. economic recovery has taken root.
U.S. employment is expected to have soared in February to its
biggest gain in nearly a year. [ID:nN01163324]
 The two-year bond CA2YT=RR was down 12 Canadian cents to
yield 1.889 percent, while the 10-year bond CA10YT=RR lost 47
Canadian cents to yield 3.403 percent.
 (Additional reporting by Solarina Ho; editing by Peter
Galloway)