CANADA FX DEBT-C$ touches 3-week high as markets bask in QE2

Thu Nov 4, 2010 5:02pm EDT
 
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   * C$ firms to 99.76 U.S. cents, but falls short of parity
 * Hits 3-week high but blocked Potash bid, data weigh
 * Bond prices also rally after Fed launches QE
 By Claire Sibonney
 TORONTO, Nov 4 (Reuters) - Canada's dollar firmed against a
battered greenback on Thursday as riskier assets rallied on the
Federal Reserve's pledge of more monetary stimulus, but weak
data and a blocked Potash Corp POT.TO bid kept parity out of
reach.
 The Fed on Wednesday said it would spend $600 billion
buying longer-term Treasury bonds as part of a renewed
quantitative easing program to boost the economy's recovery,
but the initial market reaction was anticlimactic.
 "It's quite telling that we do have this very strong market
reaction 24 hours later ... that there is still a little bit of
juice to be squeezed from this lemon," said Doug Porter, deputy
chief economist at BMO Capital Markets.
 "The major message today was that the markets, contrary to
some thought ahead of time, were apparently not fully ...
discounting quantitative easing part two."
 The Canadian dollar rose to a three-week high just short of
parity, but was undermined by unexpectedly soft Canadian
purchasing activity data and Ottawa's shock decision late
Wednesday to block BHP Billiton's BHP.AX $39 billion bid for
Potash. [ID:nN0495946] [ID:nN03272751]
 Analysts said the blocking of the biggest proposed takeover
of the year will slow the Canadian dollar's march back up to
one-for-one footing, but the loonie will still trend higher
longer term. [ID:nN04255002]
 The Canadian dollar CAD=D4 ended at C$1.0024 to the U.S.
dollar, or 99.76 U.S. cents, up from Wednesday's close at
C$1.0068 to the U.S. dollar, or 99.32 U.S. cents.
 David Bradley, director of foreign exchange trading at
Scotia Capital, sees Canadian dollar technical resistance at
last month's high of 99.81 Canadian cents to the U.S. dollar,
when the Canadian dollar was worth US$1.002.
 He sees Canadian dollar support at C$1.0156 to the U.S.
dollar, or 98.46 U.S. cents and C$1.0139 to the U.S. dollar, or
98.63 U.S. cents, levels touched after the Fed's announcement
on Wednesday and after the Potash decision.
 The week crammed with big event risks caps off with
investors looking to U.S. and Canadian jobs data on Friday.
Porter said it was unusual to see such a dramatic day in the
markets ahead of such crucial data.
 BONDS EXTEND GAINS AFTER FED
 Canadian government debt prices tracked Treasuries higher,
fueled by the Fed's asset-buying plan and somewhat boosted by
U.S. jobless claims that came in weaker than expected. [US/]
[ID:nN04207851]
 The 10-year bond CA10YT=RR rose 50 Canadian cents to
yield 2.806 percent, while the 30-year bond CA30YT=RR added
40 Canadian cents to yield 3.473 percent.
 "The fact that the 10-year area in the U.S. and even in
Canada far outperformed the 30-year suggests that quantitative
easing was really the dominant factor at play here because the
Fed is not making significant purchases in the 30-year area,"
said Porter.
 Still, Canadian 10-year bonds underperformed their U.S.
counterparts, which Porter noted is logical.
 "There really is next to no prospect of quantitative easing
in Canada so we don't get the direct benefit of Fed buying, we
basically ride on their tailwinds."
 (Additional reporting by Ka Yan Ng; editing by Jeffrey
Hodgson)