CANADA FX DEBT-C$ ends stronger after Japan quake volatility

Fri Mar 11, 2011 5:14pm EST
 
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   * C$ ends at C$0.9711 vs US$, or $1.0298
 * Hits weakest point since Feb 28 after soft jobs data
 * Recovers as stocks, gold rise; oil cuts losses
 * Bond prices gain across curve, outperform U.S.
 (Adds C$ closing level, weekly move)
 By Claire Sibonney
 TORONTO, March 11 (Reuters) - Canada's dollar closed
stronger after a volatile session on Friday, rebounding
alongside North American equities and some commodity prices,
after an early drop triggered by Japan's devastating
earthquake.
 The currency at one point hit its weakest level in nearly
two weeks. It slid after data showed domestic job creation
slowed more than expected in February and bottomed after news
U.S. consumer sentiment fell to a five-month low.
[ID:nN11228750] [ID:nN11275400]
 But by the afternoon the currency had recovered along with
U.S. and Canadian stock indexes 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 (it's) 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."
 The currency CAD=D4 fell as low as C$0.9803 to the U.S.
dollar, or $1.0201, its weakest level since Feb. 28. It was
already softer 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.
 The Canadian dollar ended the session at C$0.9711, or
$1.0298, compared with Thursday's close of C$0.9756 to the U.S.
dollar, or $1.0250. For the week it was almost unchanged.
 "We're really seeing commodity currencies generally very
strong," Sutton said. "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 had 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," Sutton said.
  The risk for the Canadian dollar is still to the downside
over the next week, Sutton said, with a U.S. Federal Open
Market Committee meeting on Tuesday. The FOMC may highlight
stronger U.S. economic data, which would likely give 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. The
currency hit C$0.9667 on March 9, its strongest level since
November 2007.
 BOND PRICES MIXED
 With the lackluster 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.
 Canadian bonds outperformed their U.S. counterparts across
the curve as the Japanese quake prompted speculation that
insurers could sell U.S. dollar assets, including Treasuries,
to raise cash.
 (With additional reporting by Ka Yan Ng; additional writing by
Jeffrey Hodgson; editing by Peter Galloway)