CANADA FX DEBT-C$ heads higher as oil prices pare losses

Tue Mar 8, 2011 1:40pm EST
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   * C$ makes moderate gains to $1.0297
 * Oil key short-term factor in C$ movements
 * Bond prices mirror U.S. Treasuries
 (Updates to afternoon)
 TORONTO, March 8 (Reuters) - The Canadian dollar edged
higher against the U.S. currency on Tuesday afternoon as oil
prices trimmed losses.
 Crude oil prices were down but off the day's lows, which
were hit after Kuwait's oil minister said OPEC was considering
boosting production for the first time in more than two years.
 The commodity-linked Canadian dollar -- which often reacts
to oil prices because of the country's large oil exports --
rose to C$0.9707 to the U.S. dollar, or $1.0302, up slightly
from its overnight high of C$0.9711. It remained locked in the
broad range between C$0.97 and C$0.98 that it has been in for
more than a week.
 "There's not really any clear evidence for it to break
C$0.97 but you also have one of the major economic reports for
Canada that's going to be coming out later this week," said
David Watt, senior currency strategist at RBC Capital Markets.
 "I think today is position- and range- trading as opposed
to anything fundamental going on."
 At 1:10 p.m. (1810 GMT), the Canadian dollar was at
C$0.9712 to the U.S. dollar, or $1.0297, up from C$0.9729 to
the U.S. dollar, or $1.0279, at Monday's close.
 While near-term market focus remains centered on the price
of oil and developments in Libya, several high-profile pieces
of Canadian data are still to come.
 Market players are looking for the Canadian economy
recovery to show momentum in January trade and February jobs
figures, due Thursday and Friday, respectively.
 If any of the figures are softer than anticipated, the
Canadian dollar will likely sell off and expectations of an
interest rate hike before midyear will be trimmed, analysts
 The Bank of Canada has left its key rate unchanged at a
still-low 1 percent since September after three consecutive
rate increases last year.
 A better-than-expected 6.6 percent rise in February
Canadian housing starts helped to support the currency on
Tuesday, when there was little other economic news to trade on.
 The currency could be ripe for a steep fall if crude prices
slide from the 2-1/2 year highs that have been fueled by unrest
in Libya and oil disruption worries.
 Michael O'Neill, managing director at Knightsbridge Foreign
Exchange, said that if oil retreats to below $100 a barrel, the
Canadian dollar would probably follow suit and tumble towards
C$0.9850, a level not seen in more than a week.
 "If oil prices retreat a bit further, the extremely short
U.S. dollar/Canada dollar positions are going to get unwound.
It's vulnerable for a correction," he said.
 "I think everything that made Canada strong is priced in.
All the good news is in the current level, maybe more. I think
the market has gotten ahead of themselves."
 Canadian government bonds were lower across the curve,
mirroring U.S. Treasuries, which were awaiting $66 billion in
new supply this week.
 The two-year bond CA2YT=RR was down 5 Canadian cents to
yield 1.884 percent, while the 10-year bond CA10YT=RR fell 40
Canadian cents to yield 3.405 percent.
 (Reporting by Ka Yan Ng; editing by Peter Galloway)