CANADA FX DEBT-C$ rebounds in choppy day after Japan quake
* 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 C$0.9668.
BOND PRICES MIXED
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)
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