CANADA FX DEBT-C$ higher as stocks, oil prices rally

Wed Jul 7, 2010 2:30pm EDT
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 * C$ up at 95.33 U.S. cents
 * Bond prices softer across curve
 * 2-year bond auction sees solid demand
 (Updates to midafternoon, adds details from 2-year bond
auction, quotes)
 By Jennifer Kwan
 TORONTO, July 7 (Reuters) - Canada's dollar climbed against
its U.S. counterpart on Wednesday as oil prices rose and U.S.
stocks, a key barometer of risk appetite, rallied on a rosy
outlook from institutional investor State Street.
 Fears about the strength of the economic recovery eased
after State Street STT.N said it would post second-quarter
operating earnings above expectations, lifting bank stocks
there. [.N] [ID:nN07140060]
 In Canada, Toronto's main stock index rallied on the rise
in oil prices and a deal by Total SA TOTF.PA to buy UTS
Energy Corp UTS.TO, which boosted prospects for the
powerhouse energy sector. [.TO]
 Oil, a key Canadian export whose price movements often
impact the direction of the currency, rose toward $74 a barrel
on hopes an improving economic picture will result in a drop in
U.S. crude inventories. [O/R]
 But part of the Canadian dollar's move higher was as much
due to there being no "big negative news out today" giving
investors a break from concerns about global growth, said
Michael Gregory, senior economist at BMO Capital Markets.
 "It's a case where we are seeing equity markets bouncing
back, commodity prices for the most part improving as well,"
said Gregory.  "I think people realized things have cheapened
up a little bit on both the equity and commodity side."
 At 1:58 p.m. (1758 GMT), the Canadian dollar CAD=D4 was
at C$1.0490 to the U.S. dollar, or 95.33 U.S. cents, up from
Tuesday's finish at C$1.0557 to the U.S. dollar, or 94.72 U.S.
 David Bradley, director of foreign exchange trading at
Scotia Capital, said technical factors were also supportive.
 "We failed (to weaken below) the C$1.0680 area a number of
times so a lot of it is a technical reversal," said Bradley.
 Canada's auction of 2-year bonds met with firm demand on
Wednesday, helped by recent data suggesting the recovery is
cooling, which makes the Bank of Canada less likely to tighten
monetary policy aggressively.
 "Two years look a little more attractive in an environment
where overnight rates may not be rising as aggressively as you
thought over the next year or two," said BMO's Gregory.
 The two-year yield has dropped below 1.5 percent from above
2 percent in April as fears of slowing global growth cooled
rate hike expectations.
 The sale of Canada's C$3 billion, 2 percent Government of
Canada bonds due Sept. 1, 2012 yielded an average 1.565
percent, down from 1.858 percent at the previous auction.
 Bids from primary dealers totaled C$7.64 billion, resulting
in a bid-to-cover ratio of 2.5. The ratio is a measure of
investor demand and a reading above 2 generally indicates a
decent auction.
 Canadian government bonds were flat to lower across the
curve on Wednesday as money flowed to equity markets.
 The two-year government bond CA2YT=RR was down 8 Canadian
cents to yield 1.457 percent, while the 10-year bond
CA10YT=RR sank 47 Canadian cents to yield 3.127 percent.
 (Editing by Jeffrey Hodgson)