CANADA FX DEBT-C$ firms a bit; equity rally hits bonds

Thu Mar 3, 2011 4:55pm EST
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   * C$ little changed at $1.0286 vs greenback
 * Bond prices slide with U.S. Treasuries on U.S. jobs data
 * Election risk may weigh on C$ in weeks ahead
 (Updates to close)
 By Ka Yan Ng
 TORONTO, March 3 (Reuters) - Canada's dollar finished a
touch higher against the greenback on Thursday in a session in
which the currency was mainly a spectator to the major events
in the foreign exchange market.
 Market focus moved 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]
 The price of oil, a key Canadian export, fell and provided
little support for 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 close to
Wednesday's finish. Overall, the currency moved in a 37-point
range, narrower than in the previous session.
 The Canadian dollar CAD=D4 closed at C$0.9722 to the U.S.
dollar, or $1.0286, up 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 past five sessions, with brief forays
outside that band.
 The Canadian dollar could come under pressure in the weeks
ahead as election talk swirls around the federal budget, due to
be presented on March 22. The three opposition parties will
have to decide whether to support the minority Conservative
government's budget in the House of Commons or risk facing an
 Prime Minister Stephen Harper said on Thursday the priority
of Canadians is the state of the economy, and not having an
election.  [ID:nN02223480] [ID:nTZO3EE7QX]
 "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."
 Canadian bond prices fell across the curve following the
lead of U.S. Treasuries, which were hurt by a stock market
rally that drew investors away from safe-haven government
 The stock market drew comfort from the Venezuelan peace
plan for Libya, which, if successful, could help lower oil
prices and remove a major headwind for equities. For details,
see [ID:nLDE72200E] [.N]
  "People are hopeful (for a resolution)," said Sheldon
Dong, fixed income analyst at TD Waterhouse Private Investment,
noting there was a measure of credibility with the involvement
of the Arab League and Venezuela.
 A sharp drop in weekly U.S. jobless claims to a 2-1/2-year
low also 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 fell 10 Canadian cents to
yield 1.881 percent, while the 10-year bond CA10YT=RR lost 38
Canadian cents to yield 3.392 percent. Canadian bonds
outperformed their U.S. counterparts across the curve.
 (Editing by Peter Galloway)