CANADA FX DEBT-C$ flees parity on broadbased greenback recovery

Tue Nov 9, 2010 4:47pm EST
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   * C$ closes at 99.27 U.S. cents, easing from parity
 * Hit strongest level since Oct. 14 before turning lower
 (Updates to close; adds details, commentary)
 By Claire Sibonney
 TORONTO, Nov 9 (Reuters) - Canada's dollar eased back from
parity against its U.S. counterpart on Tuesday, dropping nearly
a penny from the session high, under pressure from a bounce in
the greenback and a broad-based flight from riskier assets.
 Earlier, Canada's currency edged above one-for-one footing
with the U.S. dollar to its strongest levels since Oct. 14, as
commodity prices rallied and a lift in the euro helped whet
appetite for other risk-related plays.
 Stocks and many commodities reversed those early gains. The
euro also faltered as investors worried about Irish and
Portuguese government debt and hedged sizable bets against the
U.S. dollar.
 "During the course of the North American session, risk
appetite dissipated and made way for a very clear deterioration
in risk sentiment," said Matthew Strauss, senior currency
strategist at RBC Capital Markets.
 Growing inflation fears among some investors after the U.S.
Federal Reserve announced plans last week to buy $600 billion
worth of Treasuries with newly created money had led to a
sell-off in the greenback and boosted the prices of crude oil
and gold -- key Canadian commodities. Gold hit a record high on
Tuesday before retreating. [GOL/]
 "It's a continued unwinding (of U.S. dollar short
positions) after all the developments last week together with a
shift in focus away from (quantitative easing) towards ... U.S.
data and developments and also now the European sovereign
concerns," added Strauss.
 The Canadian dollar CAD=D4 closed at C$1.0074 to the U.S.
dollar, or 99.27 U.S. cents, weaker than Monday's finish at
C$1.0037 to the U.S. dollar, or 99.63 U.S. cents.
 In early trade, the Canadian dollar firmed as high as 99.80
Canadian cents to the U.S. dollar, or $1.002.
 Strauss sees further resistance for the Canadian currency
at 99.77 Canadian cents to the U.S. dollar, adding "we need to
see a close below that level to potentially trigger a renewed
round of bearishness in dollar/Canada."
 He said a key support level for the Canadian dollar is at
C$1.0157 versus the U.S. dollar.
 Canadian government bond prices were lower across the
curve, weighed down by declines in U.S. Treasuries.
 The two-year bond CA2YT=RR lost 15 Canadian cents to
yield 1.610 percent, while the 10-year bond CA10YT=RR shed 76
Canadian cents to yield 2.978 percent.
 "It's the post-party hangover from QE2," said Sheldon Dong,
fixed income analyst at TD Waterhouse Private Investment.
 "If you look at the bond market, the equity market, they've
been rallying since late August on the QE2 announcements, they
probably got a bit ahead of themselves."
 Dong noted that trading was also trickier than usual given
a holiday-shortened week ahead of Remembrance Day in Canada on
Thursday, as well as the 2-year government of Canada bond
auction on Wednesday.
 "Liquidity is at a bit of a premium this week," he said.
 In new corporate issues, Canadian AltaLink sold C$150
million of 30-year bonds, according to term sheet seen by
Reuters. [ID:nN09102101]
  (Editing by Jeffrey Hodgson)