CANADA FX DEBT-C$ inches towards US$ parity; bonds fall

Mon Apr 5, 2010 4:34pm EDT
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 * C$ touches C$1.0010, or 99.90 U.S. cents
 * U.S. data buoys global economic outlook
 * Bonds lower across the curve as risk appetite rises
 (Updates to close, adds quote
 By Jennifer Kwan and Claire Sibonney
 TORONTO, April 5 (Reuters) - The Canadian dollar edged
closer to parity with the U.S. currency on Monday, rising to a
20-month high as the price of oil soared on bets the global
economic recovery is on solid footing.
 The currency rose as high as C$1.0010 to the U.S. dollar,
or 99.90 U.S. cents, supported by oil prices that rose more
than 2 percent to their highest level since October 2008 after
recent data showed U.S. payrolls surged in March. [O/R]
 Also supporting a positive view on economic recovery was
U.S. data that showed the services sector grew in March at its
fastest pace in nearly four years, while pending sales
contracts for existing homes rose in February. [ID:nN05117920]
 "The whole recovery story gaining steam has helped us,"
said Mark Chandler, head of Canadian fixed income and currency
strategy at RBC Capital Markets.
 "The story is largely the same: the notion of the recovery
taking firmer hold and the notion that commodity prices
generally rising are certainly helpful for the Canadian dollar
doing well."
 The currency finished at C$1.0028 to the U.S. dollar, or
99.72 U.S. cents, up from Thursday's Bank of Canada close of
C$1.0084 to the U.S. dollar, or 99.17 U.S. cents. Canadian
markets were closed on Friday for the Easter holiday.
 The Canadian currency's rally fanned speculation that it
will reach parity with the greenback, perhaps as early as this
 Camilla Sutton, a currency strategist at Scotia Capital,
said "parity is imminent".
 "We really do have all the factors lining up for us here,"
she said. "We have strong domestic data, we have a very strong
fiscal sovereign position and there is an economic global
recovery, and that is good for Canada."
 The firm U.S. economic data followed a  Canadian GDP report
for January that exceeded expectations. [ID:nN31248585] The
next major focal point for Canada will be Friday's upcoming
employment data for March.
 The currency, nicknamed the loonie for the loon, a water
bird, depicted on the one-dollar coin, last reached parity with
the greenback in July 2008. In November 2007, it climbed to a
modern-day high of US$1.1039.
 Even if the currency reaches parity with the greenback
soon, there are doubts about its ability to quickly hit that
2007 level.
 "To go a whole other 10 cents is not the sort of thing you
do on momentum, you have to do that on very real economic data
and very real sentiment and that's not in the cards for the
near term," said Eric Lascelles, chief economics and rates
strategist at TD Securities.
 Canadian bond prices essentially followed the U.S. Treasury
market, where benchmark yields rose after encouraging data
reinforced the view of a faster pace of recovery and pared
safe-haven demand for bonds. [US/]
 "We definitely had some catch up in Canada to reflect those
stronger U.S. numbers. That's why we're underperforming the
U.S.," Chandler said.
 The two-year government bond CA2YT=RR fell 20 Canadian
cents to C$99.38 to yield 1.833 percent, while the 10-year bond
CA10YT=RR was lower by 89 Canadian cents at C$100.65 to yield
3.666 percent.
 Canadian bonds mostly underperformed their U.S.
counterparts, with the 10-year yield narrowing to 32 basis
  (Editing by Peter Galloway