CANADA FX DEBT-C$ falls with commodities on China concerns

Thu Jan 7, 2010 5:05pm EST
 
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 * C$ eases to C$1.0350 per US$, or 96.62 U.S. cents
 * Bonds mixed, but mostly lower
 * Eyes on Canada and U.S. jobs data on Friday
 By John McCrank
 TORONTO, Jan 7 (Reuters) - The Canadian dollar fell against
the U.S. currency on Thursday as commodity prices weakened in
response to possible indications from China that it plans to
cool its economy to keep a lid on inflation.
 A stronger U.S. dollar on the back of weaker than expected
data out of the euro zone and on comments by Japan's new
finance minister that he wanted a weaker yen also weighed on
the Canadian currency. [ID:nN07203903]
 The Canadian dollar finished the North American session at
C$1.0350 to the U.S. dollar, or 96.62 U.S. cents, down from
Wednesday's finish of C$1.0325 to the U.S. dollar, or 96.85
U.S. cents.
 The price of oil [O/R], a key Canadian export, slipped to
below $83 a barrel after a 10-day rally, on worries that demand
would ease if China took more substantial steps to remove
excess liquidity from its system in order to keep growth in
check. [ID:nTN0720799]
 China's central bank surprised markets by raising the
interest rate on its three-month bills for the first time since
August. Markets took the move as a sign the central bank could
be getting ready to use more forceful measures to cool growth
and fight inflation. [ID:nTOE60503R]
 "This is the first real indication that China's intention
is to shift away from gunning the engines to maybe starting to
tap the brake -- and we saw commodity prices pull back a little
bit and that weighed on the Canadian dollar," said Doug Porter,
deputy chief economist at BMO Capital Markets.
 The price of gold, another major Canadian export, [GOL/]
also softened.
 Early in the day, the Canadian dollar shot as high as
C$1.0291 to the U.S. dollar, or 97.17 U.S. cents, largely on
bullish hopes that U.S. and Canadian jobs data on Friday would
further signal the economic revival. [ID:nN0595130]
 Porter said the market was looking for a flat number in the
U.S. jobs report and slight rise in the Canadian employment
number.
 "I think the underlying trend is toward recovery here in
Canada and it does seem like the job market has turned the
corner,"
 BONDS MOSTLY LOWER
 Canadian bond prices were mixed, but mostly lower, after a
top U.S. Federal Reserve policymaker said the central bank
should tighten policy sooner, rather than later, to contain
long-term inflation pressures. [ID:nN07200067]
 "This afternoon we got a press release that had the Fed and
others warning the banking system about interest rate risk and
a possible rate rising rate environment and that's kept yields
(which move in the opposite direction of prices) on the front
end a little bit higher and has had modest influence in
Canada.
 The two-year government bond CA2YT=RR rose 1 Canadian
cent to C$99.75 to yield 1.384 percent, while the 10-year bond
CA10YT=RR shed 11 Canadian cents to C$100.92 to yield 3.633
percent.
 Canadian government bonds notched a mixed performance
against U.S. issues, with the two-year yield widening to 38.7
basis points above its U.S. counterpart from 36 basis points in
the previous session.
 (Reporting by John McCrank; editing by Rob Wilson)