CANADA FX DEBT-C$ cuts losses as commodities rebound
* C$ at C$0.9629 to the U.S. dollar, or $1.0385
* Bond prices backtrack in bid for riskier assets (Recasts, updates to afternoon, adds commentary)
By Claire Sibonney
TORONTO, May 12 (Reuters) - The Canadian dollar pared most of it losses against the U.S. dollar late on Thursday 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 ended higher in volatile trading as the greenback's weakness offset concerns about demand, rebounding 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 in the dramatic moves, apart from position-squaring.
At 3:29 p.m. (1929 GMT), the Canadian dollar CAD=D4 was at C$0.9629 to the U.S. dollar, or $1.0385, well off the day's lows, but still down from C$0.9611 to the U.S. dollar, or $1.0405, at Wednesday's North American session close.
Analysts cited a combination of factors for the broader 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
Still, Askari noted a lot of interest from long-term asset manager to buy Canadian dollars between C$0.9675 and C$0.9725.
Jack Spitz, managing director of foreign exchange at National Bank Financial said the next important resistance level for the currency pair 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 domestic currency will likely need to fall back through parity in order for the market to start thinking about reversing its net long positions.
Boosting the currency in recent days has been talk of positive flows on the back of foreign acquisitions and buying from Asian central banks.
Finance Minister Jim Flaherty has also signaled that while currency volatility is unwelcome, there's are advantages to having a strong currency. [ID:nN10140882]
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 sell-offs 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 17 Canadian cents to yield 3.243 percent. (Additional reporting by Ka Yan Ng; Editing by Jeffrey Hodgson)
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