CANADA FX DEBT-C$ softens as China tightening weighs
* C$ slightly down at 94.99 U.S. cents
* Bonds lifted by risk aversion on China moves
By Claire Sibonney
TORONTO, Feb 11 (Reuters) - Canada's currency weakened against the U.S. dollar on Friday, hurt by a surprise monetary policy tightening in China, even as strong Canadian economic fundamentals helped it maintain much of its recent gains.
China raised the level of reserves that banks must hold for the second time this year, spooking financial markets on the eve of its New Year holiday by showing it was intent to curb lending and inflation. [ID:nTOE61B069]
The Canadian dollar dipped after the news created a bout of risk aversion on fear that a slowdown in global growth could hurt the currency. But it managed to hold on to much of the strong gains it made on Thursday.
"Most investors are turning to Canada on a relative basis, as a very good long play," said Camilla Sutton, currency strategist at Scotia Capital.
"We have a strong fiscal position, stronger economic base, sentiment is in favor of Canada, so all in all Canada continues to outperform on its crosses."
At 9:17 a.m. (1417 GMT), the Canadian dollar was at C$1.0527 to the U.S. dollar, or 94.99 U.S. cents, slightly down from Thursday's close at C$1.0512 to the U.S. dollar. The currency on Thursday hit its highest level in two weeks.
"All in all a little bit of tightening from China is a good medium-term story because it helps to prevent an asset bubble and so I think that Canada has clawed back and is now performing on the crosses," said Sutton, referring to the Canadian dollar's recent outperformance against most currencies, including the euro.
While commodity prices have moved higher over the last few days, a dip in oil and gold on Friday weighed on the Canadian dollar.
Oil fell by more than $1 to near $74 a barrel while gold slid 1.5 percent after China's surprise move. [O/R] [GOL/]
With global equitiy and commodity markets rattled by China, risk aversion was back up, lifting Canadian bond prices.
U.S. Treasury debt prices also rose, rebounding from a selloff Thursday as Asian buyers returned to the market and investors looked forward to a week with no new supply. [US/]
The two-year bond CA2YT=RR was up 5 Canadian cents at C$100.300 to yield 1.350 percent, while the 10-year bond CA10YT=RR added 9 Canadian cents to C$102.320 to yield 3.455 percent. (Reporting by Claire Sibonney; Editing by Jeffrey Hodgson)
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