CANADA FX DEBT-C$ fall cushioned by U.S. data, Encana deal

Thu Feb 10, 2011 5:06pm EST
 
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 * C$ closes down at $1.0042
 * PetroChina pays C$5.4 bln for Canadian gas assets
 * Bonds follow U.S. Treasuries lower
 (Updates to close, adds details, commentary)
 By Claire Sibonney
 TORONTO, Feb 10 (Reuters) - The Canadian dollar edged lower
against a broadly stronger greenback on Thursday, but it rode
on the U.S. dollar's coattails to outperform other currencies,
and got a lift from PetroChina's C$5.4 billion deal to buy a
stake in a Canadian shale gas project.
 The greenback rallied after data showed a fall in U.S.
weekly jobless claims, and made extensive gains against the
euro on concerns about Europe's lack of progress tackling its
debt crisis. [FRX/]
 The U.S. report showed new applications for unemployment
benefits dropped below the crucial 400,000 mark to a 2-1/2-year
low last week, pointing to a stronger footing for the labor
market as the economic recovery gathers momentum.
[ID:nN10274526]
 Camilla Sutton, chief currency strategist at Scotia
Capital, noted, however, that the U.S. dollar was already
strong heading into the data, and that the Mexican peso was
similarly supported by greenback's strength.
 "That just speaks to CAD's and MEX's tendency to trade like
a growth proxy to the U.S. On the days when the U.S. tends to
rally, those currencies tend to outperform on the crosses," she
said.
 The second factor boosting the Canadian dollar was news
that Encana Corp ECA.TO will sell half of a prolific Canadian
shale gas project to PetroChina 601857.SS for C$5.4 billion,
marking the largest Chinese investment yet in a foreign natural
gas asset. [ID:nSGE71908F]
 "Where we are positioned relative to other currencies ...
is largely reflecting foreign investment news overnight," said
David Watt, senior currency strategist at RBC Capital
Markets.
 The Canadian dollar CAD=D4 ended the North American
session at C$0.9958 to the U.S. dollar, or $1.0042, down
slightly from Wednesday's North American close of C$0.9939 to
the U.S. dollar, or $1.0061.
 Overnight, the currency was pressured by weakness in
overseas equity markets, falling as low as C$0.9988 to the U.S.
dollar, or $1.0012, its lowest level since Feb. 1.
 The day's moves were still confined to the tight range the
Canadian dollar has traded in recently, said Sutton, as typical
correlations with drivers such as the price of oil and equities
have dissipated.
 "We're not seeing a very tight correlation with CAD trading
with either interest rate differentials or equities or
volatility, which is fairly rare and I think it just speaks to
a lot of those drivers are moving in different directions," she
said. "It's just kind of left CAD really stuck here, just
hovering around parity."
 She said parity is providing support for the Canadian
dollar and C$0.9910-20 is acting as short-term resistance.
 Data showing Canadian home prices hit a record high in
December did little to move the currency and investors will be
looking to monthly trade data on Friday for further direction.
 [ID:nSCLADE796]
 Canadian government bond prices softened, taking their cue
from U.S. Treasuries, which succumbed to modest profit-taking,
allowing yields to resume their trek higher after a rally on
Wednesday briefly interrupted the bond market's losing streak.
 The two-year Canadian government bond CA2YT=RR  was off 1
Canadian cent to yield 1.876 percent, while the 10-year bond
CA10YT=RR eased 15 Canadian cents to yield 3.471 percent.
 (Additional reporting by Ka Yan Ng; editing by Peter Galloway)