CANADA FX DEBT-C$ rebounds in choppy day after Japan quake

Fri Mar 11, 2011 3:50pm EST
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   * C$ rises to C$0.9722 vs US$, or $1.0286
 * Bond prices gain across curve, outperform U.S.
 (Updates to afternoon, adds details, quotes)
 By Claire Sibonney
 TORONTO, March 11 (Reuters) - Canada's dollar pushed higher
on Friday, rebounding alongside North American equities and
commodity prices, after a devastating earthquake in Japan
rattled global markets.
 The Canadian dollar slipped to its lowest level in nearly
two weeks early Friday, as data showed job creation slowed more
than expected in February and U.S. consumer sentiment fell to a
five-month low. [ID:nN11228750] [ID:nN11275400]
 By the afternoon, however, U.S. and Canadian stock indexes
were firmly in the black following the early selloff as
investors tried to weigh the quake's economic impact. Oil and
copper both cut losses, while safe-haven gold turned higher.
 "The U.S. dollar, particularly, has weakened off
dramatically in the last little bit so a real turnaround from
where we sat this morning, and I would say a surprising
turnaround ... it's an odd reaction," said Camilla Sutton,
chief currency strategist at Scotia Capital.
 "Generally, oil prices might have fallen off their highs
but they're still extremely elevated and there is still ongoing
evidence that the (European Central Bank) is going to hike
rates," Sutton said.
 The currency CAD=D4 fell as low as C$0.9803 to the U.S.
dollar, or $1.0201, its lowest level since Feb. 28. It was
already weaker heading into the jobs data as the deadly 8.9
magnitude earthquake that hit Japan darkened an already bleak
mood caused by weak economic data and unrest North Africa and
the Middle East.
 By 3:20 p.m. (1920 GMT), the Canadian dollar had recovered
to C$0.9722 to the U.S. dollar, or $1.0286, up from Thursday's
close at C$0.9756 to the U.S. dollar, or $1.0250.
 "We're really seeing commodity currencies generally very
strong," said Sutton. "This morning when we came in there was
so much uncertainty with headlines and video of the Japanese
earthquake really flooding the market's attention and since
then, this afternoon we've just had a refocusing."
 The currency also benefited from stronger U.S. retail
sales, which posted their largest gain in four months in
February. [ID:nN11250325]
 "That highlights that the U.S. consumer is spending and
that in turn what's good for the U.S. is good for Canada by
default. However the move we've seen in Canada is stronger than
just that," added Sutton.
 For next week, Sutton said the risk for the Canadian dollar
is still to the downside with a U.S. Federal Open Market
Committee meeting on Tuesday pointing to stronger U.S. economic
data, which is seen giving more fuel to the greenback.
 She said the Canadian currency risks testing the 50-day
moving average of C$0.9875. On the upside, higher oil prices
could see the Canadian dollar back around this week's high of
 With the domestic jobs data firming expectations that the
Bank of Canada has room to breathe before it next raises
interest rates, the rate-sensitive two-year Canadian government
bond CA2YT=RR rose 6 Canadian cents to yield 1.747 percent,
while the 10-year bond CA10YT=RR retreated 8 Canadian cents
to yield 3.278 percent.
 The bonds outperformed their U.S. counterparts across the
curve as the Japanese quake prompted speculation that insurance
could sell assets to pay for damages, and investors were
watching to see if they dispose of Treasuries to raise cash.
 (Additional reporting by Ka Yan Ng; editing by Rob Wilson)