CANADA FX DEBT-Canadian dollar follows oil prices lower

Mon Feb 7, 2011 4:59pm EST
 
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 * Closes at $0.9902 to the U.S. dollar, or $1.009
 * U.S. crude oil futures drop
 * Bond prices mixed in choppy trade
 (Updates to close, adds details, quotes)
 By Claire Sibonney
 TORONTO, Feb 7 (Reuters) - Canada's dollar retreated
against the U.S. currency on Monday, reversing early gains as
it tracked oil prices that dropped as Mideast oil supplies
remained stable despite continued unrest in Egypt.
 U.S. crude prices fell for a third straight session,
hitting their lowest level in more than a week as investors
weighed the lack of disruption in supplies from the Middle East
against speculation that oil prices could spike if the Suez
Canal were closed. [O/R]
 "It really looks like this short-term volatility in the
North American afternoon is pretty connected to (oil prices),"
said Sacha Tihanyi, a currency strategist at Scotia Capital.
 He said the move in the Canadian currency, which is linked
tightly to the country's exports of oil and other commodities,
was still fairly restrained, and noted there will be no major
economic data in Canada until monthly trade figures are
released on Friday.
 The Canadian dollar CAD=D4 closed at C$0.9902 to the U.S.
dollar, or $1.0099, down from Friday's North American close at
C$0.9884 to the U.S. dollar, or $1.0117.
 Early in the day, the currency advanced along with global
stock markets and commodity prices. It benefited as well from
second-tier Canadian data that showed building permits
rebounded in December. [ID:nN07203696]
 Adam Cole, global head of FX strategy at RBC Capital
Markets in London, said the currency was supported by the
risk-on tone in the markets, partly in a play on last week's
North American employment figures.
 Canada's economy created more than quadruple the 15,000
jobs in January that markets had expected. [ID:nN04174016]
 Although the rise in January U.S. payrolls was much smaller
than expected, traders concluded the figure was affected by
severe snowstorms and instead focused on a sharp drop in the
jobless rate.
 "The market's reading of the U.S. employment data on Friday
was, on balance, better-than-expected despite what the headline
number showed," Cole said. "The market has gone with the view
that the weather was a major factor."
 Canadian government bond prices also turned choppy in
afternoon trade, reversing some earlier losses.
 The two-year bond CA2YT=RR was up 1 Canadian cent to
yield 1.843 percent, while the 10-year bond CA10YT=RR rose 14
Canadian cents to yield 3.443 percent.
 Sheldon Dong, fixed income analyst and TD Waterhouse
Private Investment, said that market focus was on corporate
bank debt, with prices rising after Canadian banks said they
don't expect to have to redeem securities early to comply with
new Basel III global bank regulations. [ID:nN07207105]
 (Reporting by Claire Sibonney; editing by Peter Galloway)