CANADA FX DEBT-C$ cuts losses on commodities' comeback

Thu May 12, 2011 4:43pm EDT
 
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 * C$ closes down at C$0.9623 vs US$, or $1.0392
 * Bond prices backtrack in bid for riskier assets
 (Updates to close, adds details, quotes)
 By Claire Sibonney
 TORONTO, May 12 (Reuters) - The Canadian dollar closed
lower against the U.S. dollar on Thursday, but pared most of
the session's losses as a rebound in oil and other commodities
helped restore interest in the resource-based currency.
 By the end of the day, U.S. crude oil futures were higher
after volatile trading, rising on greenback weakness, which
offset concerns about demand. Oil rebounded from a 5 percent
plunge in the previous session. [O/R]
 U.S. stocks also stabilized in positive territory. [.N]
 "It's amazing, today has just been a gyration in crude,
equities and the FX market, the market seems really uncertain,"
said Firas Askari, head of foreign exchange trading at BMO
Capital Markets.
 "You've had monstrous ranges here in the currencies but the
volume hasn't been that heavy," he added, noting that traders
were hard-pressed to come up with any concrete explanations for
the dramatic moves, apart from position-squaring.
 The Canadian dollar CAD=D4 ended the North American
session at C$0.9623 to the U.S. dollar, or $1.0395, well off
the day's lows, but still slightly down from Wednesday's close
of C$0.9611 to the U.S. dollar, or $1.0405.
 Analysts cited a combination of factors for the broad
rebound in riskier assets, including a bounce in the euro and
signals that the White House and congressional Republicans were
moving closer to an agreement on raising the national debt
ceiling.
 Askari said that uncertainty over the Bank of Canada's next
policy move is a factor weighing on the currency, as investors
eagerly await crucial inflation numbers next week. ECONCA
 The recent collapse in commodity prices has raised
questions about how high the Bank of Canada, which targets
inflation, is likely to raise interest rates over the rest of
the year. BOCWATCH
 Weaker commodity prices could undermine economic growth and
take pressure off the Bank of Canada to tighten monetary
policy.
 "Again if we have a blowout (inflation) number next week,
then you can see those expectations ramp up and the Canadian
dollar will appreciate," said Askari, adding that is not what
the central bank wants.
 "The Bank of Canada does not want the Canadian dollar to
appreciate in a rapid manner and everyone is very cognizant of
that."
  Finance Minister Jim Flaherty has also signaled that
currency volatility is unwelcome, but he said this week that
there are advantages to having a strong currency.
[ID:nN10140882]
 Boosting the currency in recent days has been talk of
positive flows on the back of foreign acquisitions and buying
by Asian central banks.
 Askari cited a lot of interest from long-term asset
managers to buy Canadian dollars between C$0.9675 and
C$0.9725.
 Jack Spitz, managing director of foreign exchange at
National Bank Financial, said important Canadian dollar support
lies around C$0.97-C$0.9720, followed by the 90-day moving
average of C$0.9765 and a bigger trendline at C$0.9800.
 "The market continues to be biased for an outperformance by
the Canadian dollar against the U.S. dollar," he said, noting
the Canadian currency will likely need to fall back through
parity for the market to start thinking about reversing its net
long positions.
  Canadian bond prices retreated as they tracked their U.S.
counterparts, which were hurt by the lackluster 30-year
Treasury bond auction and renewed appetite for stocks and
commodities after recent selloffs in riskier assets. [US/]
 Canada's two-year bond CA2YT=RR was off 1 Canadian cent
to yield 1.705 percent, while the 10-year bond CA10YT=RR fell
8 Canadian cents to yield 3.233 percent.
 (Additional reporting by Ka Yan Ng; editing by Peter
Galloway)