CANADA FX DEBT-C$ rises with sentiment, but turbulence seen

Tue Jun 8, 2010 9:03am EDT
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 * C$ rises to 94.96 U.S. cents from 94.32 U.S. cents
 * Hints at diversification away from USD, euro
 * Canadian bonds slightly lower
 By John McCrank
 TORONTO, June 8 (Reuters) - The Canadian dollar rose
against the greenback on Tuesday as the general mood in
financial markets improved and big players appeared to be
diversifying away from the U.S. dollar and euro.
 U.S. stock futures were pointing toward a higher open after
falling hard at the end of the previous session to finish at
their lowest close in seven months on concerns about the global
economic recovery.
 U.S. Federal Reserve Chairman Ben Bernanke late on Monday
said that European leaders would stand by the euro and had the
means to meet obligations of heavily indebted member countries.
 That may have soothed investors' nerves some, but
volatility in the equities markets will likely remain, as it
will with the Canadian dollar, said Doug Porter, deputy chief
economist at BMO Capital markets.
 "Just because the currency starts the day strong, it
doesn't mean it's going to finish the day strong."
 "(The currency) almost seems to have been completely
beholden to how global financial markets fare, rather than
having any lasting effect on it from Canadian domestic data in
recent weeks."
 A strong jobs reports in Canada on Friday had no effect on
the currency, as the data was undercut by weak employment
numbers from the United States, which is far and away Canada's
biggest trading partner.
 At 8:40 a.m. (1240 GMT), the Canadian dollar CAD=D4 was
at C$1.0530 to the U.S. dollar, or 94.96 U.S. cents, up from a
close of C$1.0602 to the U.S. dollar, or 94.32 U.S. cents at
the end of Monday's North American close.
 Camila Sutton, a currency strategist at Scotia Capital,
said there may be more going on than just improved, if shaky,
market sentiment.
 "We had a miserable close in equities yesterday, so I don't
think we are in an environment that would be beneficial for
commodity-based currencies," she said.
 "It hints at a pattern of diversification flows."
 She said it appeared that central banks and big
institutional players may be buying the Canadian dollar, along
with other commodity-based currencies to diversify away from
the euro and greenback.
 On the domestic data front, Canadian housing starts --
rarely a market mover -- fell in May to a seasonally adjusted
annualized rate of 189,100 units from a revised 201,800 in
April. That was below the consensus expectations of analysts
who had called for 200,000 starts May. [ID:nTOR007555]
 Looking ahead, there are no major Canadian data releases
this week. In the United States, market players will be
watching the U.S. retail sales numbers on Friday for more
insight into the health of the world's No. 1 economy.
 Canadian bond prices were slightly weaker, mirroring U.S.
Treasuries, as investors cautiously tip-toed into more
lucrative, but less stable, equities.
 The two-year Canadian government bond CA2YT=RR was down 6
Canadian cents to yield 1.655 percent, while the 10-year bond
CA10YT=RR fell 10 Canadian cents to yield 3.304 percent.
 (Reporting by John McCrank; Editing by Theodore d'Afflisio)