CANADA FX DEBT-C$ ekes out gain in narrow trading range

Fri Dec 10, 2010 4:50pm EST
 
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   * C$ edges up to 99.07 U.S. cents
 * Long-dated bonds stay lower after U.S. trade data
 * Get used to upward pressure on C$: Flaherty
 (Updates to close)
 By Ka Yan Ng
 TORONTO, Dec 10 (Reuters) - The Canadian currency eked out
a small gain against the U.S. dollar on Friday, trapped in the
tightest trading range in several weeks and uninspired by
firmer equity markets and data that showed the country's trade
deficit shrank in October.
 The currency remained stuck in its recent narrow band,
moving in just a 21-point range during the North American
session. The range has compressed in each of the last three
sessions and it was the most compact span since Nov. 29 when
the currency traded in a 48-point range.
 The Canadian dollar CAD=D4 finished at C$1.0094 to the
greenback, or 99.07 U.S. cents, up from Thursday's close at
C$1.0105 to the U.S. dollar, or 98.96 U.S. cents. For the week,
the Canadian dollar fell 0.6 percent.
 "The data this morning was fairly positive for Canada in
the sense that exports are looking relatively strong. We have
commodities very close to where they closed the day before and
equities slightly stronger," said Camilla Sutton, chief
currency strategist at Scotia Capital.
 "So not a lot of real movement out of Canada. We're just
sticking around parity but unable to really break through. We
need a material catalyst to push us through the C$0.9980 level
on a sustainable basis."
 That level above parity was reached on Oct. 14, one of a
handful of times that the Canadian dollar has returned to a
one-for-one level with the U.S. dollar since April. There was
also a brief run in November where the currency struggled to
hold above par.
 With no top tier domestic data expected next week,
attention will look to the United States for a possible
catalyst, notably the Federal Reserve's interest rate decision
and November reads on retail sales and the consumer price
index. ECONUS
 In economic news on Friday, higher exports helped cut
Canada's October trade deficit to a smaller than expected
C$1.71 billion from a revised C$2.31 billion in September,
Statistics Canada reported.
 Market analysts had predicted a deficit of C$2.1 billion in
October. In recent months the high Canadian dollar and weak
U.S. economy have cut demand in the United States, Canada's
biggest export market by far. [ID:nN10267094]
 Meanwhile, Finance Minister Jim Flaherty told Reuters
Insider on Friday that Canada needs to get used to upward
pressure on its dollar. [ID:nN10294555]
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Reuters Insider show on: link.reuters.com/vet59q
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 The currency's muted reaction to Friday's data was probably
offset by the unexpectedly large contraction in the U.S. trade
deficit, analysts said. Toronto's main stock index advanced
0.55 percent in a broad-based rally.
 Separately, data from the Commodity Futures Trading
Commission showed speculators added to bets in favor of the
Australian and Canadian dollars. [ID:nN10116786]
 BONDS HOLD LOWER
 Long-dated government bond prices mirrored the drop in
comparable U.S. Treasuries after data showed the U.S. trade
deficit narrowed much more than expected in October.
 The 10-year bond CA10YT=RR fell sharply, down 61 Canadian
cents to yield 3.320 percent, as the smaller than expected
trade deficit could boost estimates of U.S. fourth-quarter
economic growth.
 "(Yields) quite quickly jumped on the story of stronger
U.S. growth. To be honest, it's probably not worth that much
more in terms of additional growth in U.S. numbers, but there
just seems to be a bias in the market of that," said Mark
Chandler, head of Canadian fixed income and currency strategy
at RBC Capital Markets.
 The U.S. trade gap totaled $38.7 billion, compared with a
forecast of about $43.6 billion, and down from a revised
estimate of $44.6 billion for September. [ID:nN09288102]
 The two-year bond CA2YT=RR was down 6 Canadian cents to
yield 1.724 percent. Canadian government bonds put in mixed
performance against their U.S. counterparts with the front- and
back-end of the curve underperforming. The belly of the curve
outperformed.