CANADA FX DEBT-C$ up at 3-year high despite retreating oil

Wed Mar 9, 2011 5:24pm EST
 
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   * C$ rises to three-year high at $1.0323
 * Bonds firm up in safe-haven play, falling equities
 * Solid demand for C$3 bln auction of Canada 2-yr notes
 * Next up: Canada trade data for January at 8:30 a.m.
 By Ka Yan Ng
 TORONTO, March 9 (Reuters) - The Canadian dollar gained on
Wednesday to its highest level against the greenback in more
than three years, despite a slight retreat in U.S. oil prices.
 Canada's resilient dollar shrugged off a 0.6 percent
decline in U.S. benchmark West Texas Intermediate crude, the
commodity that is highly influential to the currency because of
growing output and large exports to the United States.
 The Canadian dollar broke through the C$0.97 barrier
against the U.S. dollar and hit its highest level since
November 2007. It rose as high as C$0.9667 to the U.S. dollar,
or $1.0344.
 World benchmark Brent crude remained buoyant, rising 2.55
percent to just under $116 a barrel. Other commodity prices
were softer, as measured by the Reuters-Jefferies CRB index
.CRB, which was off 0.24 percent.
 Canada's dollar CAD=D4 closed at C$0.9687 to the U.S.
dollar, or $1.0323, up from C$0.9714 to the U.S. dollar, or
$1.0294, at Tuesday's North American session close.
 "What this does show is that there is some underlying
strength in the Canadian dollar, which doesn't look set to go
away any time soon unless commodity prices pull a major
retreat. I think that's the one thing that could really knock
it off its perch," said Doug Porter, deputy chief economist at
BMO Capital Markets.
 "The other thing that could unwind the loonie would be the
economic data that we're going to see over the next couple of
days."
 Market players will be searching for evidence that the
Canadian economy's recovery has momentum when they look at the
January trade and February jobs figures due on Thursday and
Friday, respectively. ECONCA
 "Both are coming off incredibly strong numbers a month ago,
but the big question is whether that strength can be maintained
or not," said Porter.
 "We think both reports will be a bit of a pale imitation of
the prior months, although both will still be relatively
solid."
 The data may help firm up the market's thinking on the
timing of interest rate hikes in Canada. The first fully
priced-in 25 basis point rate hike is for the September Bank of
Canada policy-setting, according to a Reuters calculation of
yields on overnight index swaps.
 Canadian government bond prices firmed across the curve on
Wednesday in a safe-haven play on worries over the Libyan
conflict and euro zone debt crisis.
 Porter said Canadian bond action largely matched movement
in U.S. Treasuries, reflecting softening energy prices and
stocks and an absence key economic indicators today.
 The two-year bond CA2YT=RR was up 2 Canadian cents to
yield 1.872 percent, while the 10-year bond CA10YT=RR rose 6
Canadian cents to yield 3.392 percent.
 Canada's sale of two-year government bonds met with strong
demand, helped by yields well above U.S. levels and interest
from foreign investors who perceive the country as a safe
haven. [ID:nN09268621]
 The C$3 billion auction produced an average yield of 1.867
percent, the highest for a two-year auction since last April.
 (Reporting by Ka Yan Ng; editing by Peter Galloway and Jeffrey
Jones)