CANADA FX DEBT-C$ edges down as oil fluctuates, bonds mixed

Mon Mar 7, 2011 4:58pm EST
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   * C$ eases to $1.0279 as U.S. crude trims gains
 * Bond prices mixed as equities fall, supply coming
 * Canada January building permits fall unexpectedly
 (Adds details)
 TORONTO, March 7 (Reuters) - Canada's dollar CAD=D4
finished lower against the greenback on Monday, buffeted by
volatile oil prices, which fluctuated with violence in Libya
and on concerns about supply disruptions.
 U.S. crude futures CLc1, an influential factor for the
commodity-linked Canadian dollar, ended higher, though paring
some gains after reaching their highest level since September
2008. But Brent crude oil futures ended lower. [ID:nL3E7E700D]
 The Canadian dollar managed to limit losses, finishing at
C$0.9729 to the U.S. dollar, or $1.0279, down from Friday's
North American session close at C$0.9717 to the U.S. dollar, or
 The currency stayed in a moderate range of C$0.97-C$0.9743,
similar to the last seven sessions, which have seen the
currency locked in a C$0.97-C$0.98 band.
 "We've had a shift in markets over the day. It started off
very positive and everything's turned negative as the day wore
through. We've had a pretty tight range over the last few
sessions here," said Camilla Sutton, chief currency strategist
at Scotia Capital.
 "(Dollar/Canada) hasn't really been able to move lower, but
it's not really moving substantially above. It just highlights
that it's waiting for a catalyst, and that's likely to be oil."
 Oil was the leading factor that pressured equity markets,
as worries mounted about the stifling effect of higher oil
prices, which are now above $100 a barrel. Major North American
indexes were down more than 1 percent at one point on Monday.
 Sutton noted the correlation between U.S. oil prices and
the Canadian dollar has strengthened once again, particularly
on a rolling 30-day basis, with factors such as the euro,
interest rate spreads, and equities lagging oil.
 Canadian government bonds were mildly mixed with equities
on the decline and tracked U.S. Treasuries, which fell on
upcoming $66 billion in new supply this week.
 The two-year bond CA2YT=RR was unchanged to yield of
1.853 percent, while the five year bond eked out a 1 Canadian
cent gain to yield 2.763 percent. The 10-year bond CA10YT=RR
edged down 10 Canadian cents to yield 3.350  percent.
 Several pieces of data this week will help determine the
strength of the domestic economic recovery and market pricing
on the Bank of Canada's next interest rate hike.
 "We're waiting for some sort of catalyst to kick us out of
this current range that we're in (where) C$0.97 is looking to
be pretty good (U.S. dollar) support. It's going to be
data-driven." said Brendan McGrath, senior foreign exchange
trader at Western Union Business Solutions, in Victoria,
British Columbia.
 Housing starts, due on Tuesday, could show whether the
sector continues to be a drag on overall growth after being a
main factor pulling the economy from recession.
 Trade data for January on Thursday, as well as the February
reading on the jobs market on Friday, will be the main
attractions this week as market players look to see whether
both pieces of data can repeat the unexpected strength from
their previous months.
 But if any of the data is weaker, the Canadian dollar may
follow suit and weigh on anticipation of an interest rate hike
before midyear, analysts said.
 The central bank has stayed on the sidelines since
September after three consecutive rate increases last year
brought its benchmark rate to a still-low 1 percent.
 Overnight index swaps, which trade based on expectations
for the key central bank rate, imply a fully priced-in rate
increase on the bank's Sept. 7 decision date. BOCWATCH
 (Reporting by Ka Yan Ng; editing by Rob Wilson)