CANADA FX DEBT-C$ falls but still finishes above par

Tue Jan 4, 2011 4:40pm EST
 
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 * C$ falls to $1.0015, first drop in 10 trading sessions
 * Finishes above par for 2nd straight Canadian session
 * Bonds prices fall across curve on U.S. economy view
 (Updates to close)
 By Ka Yan Ng
 TORONTO, Jan 4 (Reuters) - The Canadian dollar finished
lower against the greenback for the first time in 10 trading
sessions on Tuesday, pulled down by retreating oil prices, but
it still ended the day above par against the U.S. currency.
 Canada is a major oil producer, and despite a slide of 2
percent in crude prices to below $90 a barrel, many investors
expect the Canadian dollar to trade near par with the U.S.
dollar for some time due to optimism about the world economy.
 "If we continue to see some decent Canadian economic
releases and no pain out of Europe, then the Canadian dollar
will appreciate as long as we continue to see stronger oil and
commodity prices," said John Curran, senior vice president at
CanadianForex, noting the U.S. dollar had perked up.
 "Markets are getting back to some sort of normalcy. A few
of the other currencies have pulled back...so it makes sense
for the Canadian dollar to give up some of the ground it
gained."
 The currency finished above parity for a second session at
C$0.9985 to the U.S. dollar, or $1.0015, but down from Friday's
finish, when it ended the year at C$0.9946 to the U.S. dollar,
or $1.0054.
 During the Canadian dollar's trek above parity in the final
trading sessions of 2010, investors cautioned that thin
conditions exacerbated the move. A Reuters foreign exchange
poll last month showed analysts expected the Canadian dollar
would hover around parity for a good portion of 2011.
[CAD/POLL]
 "It's fascinating to me that most of those fairly
significant moves we saw last year ... basically have been
maintained in early 2011. I think there's a little bit more
meat on the bones than people give ... credit for," said Doug
Porter, deputy chief economist at BMO Capital Markets.
 The Canadian dollar shot as high as C$0.9889 to the U.S.
dollar, or $1.0112, on Monday, when Canadian financial markets
were closed. This represents a new technical support level for
the U.S. currency against the Canadian dollar, said Adam Cole,
head of global FX strategy at RBC Capital Markets in London.
 Early on Tuesday, the Canadian currency touched as high as
C$0.9917 to the U.S. dollar, or $1.0084, its highest level
since May 2008. It fell as low as C$1.0035 to the U.S. dollar,
or 99.65 U.S. cents, its lowest level since Dec. 29, due to the
falling price of oil and the boost given to the greenback by
strong U.S. factory orders figures for November.
 BONDS EXTEND FALL
 Canadian bond prices extended losses into the end of the
session, dropping hard on the day's economic data, which
suggested a brighter economic outlook.
 The factory orders data showed the largest gain in eight
months, while some analysts said the U.S. Federal Reserve's
take on the economy improved again though the central bank
still had a "fairly high" bar for stopping its bond
repurchases. [ID:nN03158039] [ID:nFEDAHEAD]
 North American employment data on Friday will provide the
main focus this week, with improvements expected on both sides
of the border. U.S. Federal Reserve Chairman Ben Bernanke's
congressional testimony that day will also be closely watched.
[ID:nN31145126] [ID:nN31145126] ECON
 "The market remains under a bit of pressure because U.S.
economic reports continue to generally come in better than
expected. I think there's a sense that Friday's employment
report will be a big improvement over November's weak affair in
Canada and the U.S.," Porter said.
 The two-year bond CA2YT=RR was down 5 Canadian cents to
yield 1.696 percent, while the 10-year bond CA10YT=RR dropped
50 Canadian cents to yield 3.178 percent. Canadian government
bonds put in a mixed performance against the U.S.
counterparts.
 (Reporting by Ka Yan Ng and Claire Sibonney; editing by Peter
Galloway)