CANADA FX DEBT-C$ rises with resources, Bank of Canada

Thu Sep 10, 2009 5:24pm EDT
 
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 * Canadian dollar gains strength from stock market rise
 * Bank of Canada stance supports currency
 * Market shrugs off government budget deficit forecasts
 * Bonds rise; focus on new issues
 (Updates prices, adds comment)
 By Ka Yan Ng
 TORONTO, Sept 10 (Reuters) - The Canadian dollar CAD=D3
held higher against a generally weaker U.S. currency on
Thursday, drawing support from stock market gains and a rosier
economic outlook from the Bank of Canada.
 A buoyant equity market in Toronto, spurred by a rally of
resource shares, helped the commodity-linked Canadian dollar
climb from Wednesday's close. It closed just shy of its
overnight peak at C$1.0776 to the U.S. dollar, or 92.80 U.S.
cents.
 The Canadian dollar finished at C$1.0783 to the U.S.
dollar, or 92.74 U.S. cents, up slightly from Wednesday's close
at C$1.0810 to the U.S. dollar, or 92.51 U.S. cents.
 "If equities continue to make gains...and commodities still
remain strong, (the Canadian dollar) will have no choice but to
strengthen," said John Curran, senior vice president at
CanadianForex.
 Early support for the currency came from the Bank of
Canada, which said growth in the second half of the year could
be stronger than it had forecast. The bank also left its
benchmark interest rate unchanged at a stimulative 0.25
percent, as expected. [ID:nN10390757]
 The Canadian dollar took some comfort that the central bank
didn't make any changes to its stance on the currency's
appreciation. The Bank of Canada once again warned that
persistent strength in the Canadian dollar remains a risk to
economic recovery and to inflation. But its language on the
currency was no tougher than in recent statements and
speeches.
 "We did see the currency strengthen somewhat but not in a
huge way," said Doug Porter, deputy chief economist at BMO
Capital Markets.
 "I think perhaps the currency market was a bit relieved
that there wasn't a stronger (Bank of Canada) statement (on the
Canadian dollar) and it may have benefited from their upward
adjustment in their growth call."
 The currency largely shrugged off revised budget figures
from the government, which pushed back by at least two years
its projected return to a balanced budget. [ID:nN10410511]
 BONDS HEAD HIGHER
 Canadian government bonds were higher across the curve on
Thursday after several days of decline, disassociating from the
typical inverse relationship with stocks, which also advanced.
 One analyst said the spotlight was on a recent wave of new
debt and equity issues.
 "Since everyone came back from Labor Day holidays, there's
been just a flood of new issuance in North America," said   
Sheldon Dong, fixed income analyst at TD Waterhouse Private
Investment. "That is where I think most of the focus is right
now, just a really healthy market for primary debt and equity
issuance.
 "So the secondary market trading is in the background."
 Recent issues include share offerings from Barrick Gold
ABX.TO and Fairfax Financial Holdings Ltd FFH.TO, while
Royal Bank of Canada RY.TO said it may raise funds in debt or
preferred shares.
 The two-year bond CA2YT=RR was up 8 Canadian cents at
C$99.60 to yield 1.207 percent, while the 10-year bond
CA10YT=RR gained 70 Canadian cents to C$103.45 to yield 3.330
percent. The 30-year bond CA30YT=RR rose C$1.36 to C$119.11
to yield 3.869 percent.
 Canadian bonds mostly underperformed their U.S.
counterparts. The Canadian 10-year bond yield was 2.5 basis
points below its U.S. counterpart, compared with 6.3 basis
points on Wednesday.
 (Editing by Peter Galloway)