CANADA FX DEBT-C$ softens on Fed comments, oil supports

Wed Jun 8, 2011 5:02pm EDT
 
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   * C$ closes at C$0.9797 to the U.S. dollar, or $1.0207
 * Bonds firmer across curve, tracking U.S. Treasuries
 By Solarina Ho
 TORONTO, June 8 (Reuters) - Canada's dollar softened
against its U.S. counterpart on Wednesday as dovish comments by
the Federal Reserve and risk aversion lessened the currency's
appeal, but a rise in crude prices helped cushion some of
weakness.
 Oil prices jumped after OPEC failed to reach a deal to
increase output, raising fears of supply shortages later this
year that could fuel another price rally. Canada is the main
energy supplier to the United States and the currency is often
sensitive to movements in crude prices. [O/R]
 "Like all currencies, it's taken a bit of a hit, as we've
got some risk aversion going on. Lack of risk appetite seems to
be a common theme recently," said Mark Chandler, head of
Canadian fixed income and currency strategy at RBC Capital
Markets.
 "Compared to other currencies outside of (the U.S. dollar)
though it's holding in reasonably well. One of the factors may
be that oil prices got a bit of a boost as OPEC couldn't come
to any agreement."
 Fed Chairman Ben Bernanke acknowledged on Tuesday that the
economy in the United States -- the destination for most
Canadian exports -- has slowed, but offered no hints of further
monetary easing. [ID:nN07142566]
 "The thing that I'm taking out of it is he's saying
inflation is going to be temporary," said John Curran, senior
vice president at CanadianForex, a commercial foreign exchange
dealing firm.
 "If they're not going to raise interest rates, neither is
Canada because we can't get too far ahead the States."
 Higher interest rates tend to support currencies by
attracting international capital flows. A recent poll showed
Canada's central bank is expected by many to resume its rate
hike campaign in September. <CA/POLL>
 The currency CAD=D4 finished the session at C$0.9797 to
the U.S. dollar, or $1.0207, down from Tuesday's North American
finish of C$0.9755 to the U.S. dollar, or $1.0251.
 A report on Wednesday showed Canadian housing starts rose
in May to a slightly higher than expected seasonally adjusted
annual rate of 183,600 units, boosted by a pickup in multiunit buildings like condominiums, but analysts said the numbers
were not sufficiently dramatic to drive the currency.
[CAHSTA=ECI]
 With analysts like Curran calling much of Canada's economic
data "mediocre at best", investors are now focused on Friday's
employment numbers. ECONCA
 "People are keeping their powder dry for Friday's (job)
number... You see a lousy number on Friday, we'll be trading on
a C$0.9900 handle for sure," he said.
 Chandler said that even with a good employment report
investors will still wonder how markets will perform once
quantitative easing is over in the United States.
 "Any relief, even if we get good domestic data, the risk
backdrop may not be all that beneficial for the Canadian
dollar," said Chandler.
 Canadian bond prices were firmer across the curve, tracking
a rally in U.S. treasuries after Bernanke's comments. [US/]
 The two-year bond CA2YT=RR was up 2.5 Canadian cents to
yield 1.432 percent, while the 10-year bond CA10YT=RR added
19 Canadian cents to yield 3.009 percent.