RPT-CANADA FX DEBT-C$ ticks up on data, Russia, bond moves

Wed Dec 8, 2010 5:28pm EST
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   * C$ closes at 98.93 U.S. cents
 * Canadian bond prices track U.S. Treasuries down
 (Updates to close, adds details, quotes)
 By Claire Sibonney
 TORONTO, Dec 8 (Reuters) - The Canadian dollar ended
slightly higher against the greenback on Wednesday on positive
domestic data, comments from Russia's central bank and a deal
to extend U.S. tax cuts that could benefit both currencies.
 There was little direction taken from flat U.S. stocks, a
key barometer of risk appetite, and lower oil and gold prices
were largely shrugged off. [.N] [O/R] [GOL/]
 Leading currency direction, U.S. Treasury prices plunged
for a second straight day on plans to extend Bush-era U.S. tax
cuts, pushing benchmark yields US10YT=RR to a six-month high.
Higher yields tend to boost the greenback, enhancing the
attractiveness of U.S. dollar-denominated assets.
 Currency investors have focused on the better growth
prospects that the tax plan may bring, which could also lift
Canada, the biggest U.S. trading partner.
 "Very small moves in the Canadian dollar generally, and for
the most part it was trading off bond developments rather than
something independent to the FX market," said Mark Chandler,
head of fixed income and currency strategy at RBC Capital
 The Canadian dollar CAD=D4 closed the North American
session at C$1.0108 to the U.S. dollar, or 98.93 U.S. cents, up
slightly from Tuesday's close at C$1.0114 to the U.S. dollar,
or 98.87 U.S. cents.
 Also on the plus side for Canada, Chandler pointed to the
stronger than expected domestic housing starts, although he
noted the details were not as upbeat as the headline
 Canadian housing starts rose a greater than expected 11.6
percent in November, but most of the gains were in a single
province, Ontario, and economists said the home-building
industry was still decelerating toward a soft landing.
 As well, Russia has recently started buying the Canadian
dollar for its near-$500 billion in gold and forex reserves,
and its central bank governor said the currency's share of the
portfolio could rise to 1 to 2 percent next year.
 For the first time in weeks, euro zone debt concerns were
placed on the back burner as investors focused on U.S. economic
and interest-rate fundamentals in a thinning market as the end
of the year approaches.
 Canadian bond prices slid on Wednesday, tracking U.S.
Treasuries lower, but managing to trim earlier losses. [US/]
 The two-year bond CA2YT=RR was down 8 Canadian cents to
yield 1.676 percent, while the 10-year bond CA10YT=RR dropped
18 Canadian cents to yield 3.244 percent.
 Canadian bonds outperformed their U.S. counterparts across
the curve, and Chandler noted the Canadian-U.S. 10-year yield
spread turned negative for the first time since May.
 "Canada's outperformance is simply reflecting the upgrade
to U.S. economic forecasts on the assumption that, first of
all, the tax package is sizable and impactful and second that
it's likely to go through," he said.
 Also helping Canada, the auction of three-year bonds met
with healthy appetite, while the U.S. auction of 10-year notes
was described as relatively successful, albeit somewhat sloppy,
said Chandler. [ID:nN08152103]
 In other issues, the province of Ontario sold C$750 million
in a reopening of an existing issue. [ID:nN07125517]
 (Reporting by Claire Sibonney)