CANADA FX DEBT-C$ steers a rising course past soft data

Thu Sep 9, 2010 4:57pm EDT
 
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   * C$ finishes at 96.74 U.S. cents
 * Bond prices drift lower
 * Canadian data suggests sputtering start to Q3 growth
 * Next up: August jobs report, Carney speaks in Alberta
 (Updates to close)
 By Ka Yan Ng
 TORONTO, Sept 9 (Reuters) - The Canadian dollar rose for a
second day against its U.S. counterpart on Thursday, shrugging
off soft Canadian economic data and getting support from the
Bank of Canada's outlook and a broad return of risk appetite
through several markets.
 The currency hit its strongest level in three weeks,
extending gains after the Bank of Canada raised interest rates
for a third straight time on Wednesday and sounded surprisingly
hawkish in its outlook. Canadian bond prices continued to sell
off.
 Canada had a record high monthly trade deficit in July and
the housing market stalled, data released on Thursday showed,
signaling sputtering economic growth as the third quarter got
under way. [ID:nN09180600]
 But the market took the data in stride, possibly because
Thursday's figures were sandwiched between the Bank of Canada's
policy announcement and Friday's Canadain jobs numbers for
August, which are more immediately important in determining the
central bank's monetary-policy path, said Matthew Strauss,
senior currency strategist at RBC Capital Markets.   
 "Today's continuation of the rally has more to do with risk
appetite than any Canadian specific story," he said. "It was a
hefty trade deficit, but the market decided to ignore it.
Drilling into details, it wasn't as bad."
 Canada's trade deficit, at C$2.74 billion, was much higher
than expected in July as exports to the United States sank
because of anemic demand, and imports surged to their highest
level since November 2008, Statistics Canada data showed.
 The two-year Canada bond CA2YT=RR dropped 9 Canadian
cents to yield 1.462 percent, while the 10-year bond
CA10YT=RR shed 40 Canadian cents to yield 3.090 percent.
Government bonds outperformed U.S. Treasuries across most of
the curve, except in the two-year maturity.
 The Canadian dollar CAD=D4 finished at C$1.0337 to the
U.S. dollar, or 96.74 U.S. cents, up from Wednesday's finish at
C$1.0374 to the U.S. dollar, or 96.40 U.S. cents.
 Earlier, the currency hit C$1.0301 to the U.S. dollar, or
97.08 U.S. cents, its highest level since Aug. 19.
 "This is follow-through on what's perceived to be the Bank
of Canada leaving the door slightly ajar to more
(interest-rate) hikes," said Firas Askari, head of foreign
exchange trading at BMO Capital Markets.
 The central bank nudged its overnight rate target up by 25
basis points to 1 percent on Wednesday and, contrary to most
economists' expectations, did not signal a subsequent pause in
rate hikes. It said rates remained "exceptionally stimulative"
but it kept all options open due to doubts about the U.S. and
global recoveries. [ID:nN08241537]
 Friday has several high-profile events. Bank of Canada
Governor Mark Carney will be participating in the Spruce
Meadows Changing Fortunes Round Table in Alberta. His comments
will follow Canada's August figures for employment. They are
expected to show the economy added 30,000 jobs in the month,
while the unemployment rate may remain steady at 8 percent.
[ID:nN03113893] 
 In other debt news, the Province of Ontario sold C$600
million in a reopening of an existing issue, according to a
term sheet seen by Reuters on Thursday. [ID:nN09183243]
 (Additional reporting by Claire Sibonney; editing by Peter
Galloway)