CANADA FX DEBT-C$ falls with oil; eyes on Bank of Canada

Mon Jul 12, 2010 4:36pm EDT
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   * C$ ends at 96.39 U.S. cents
 * BoC survey shows business upbeat, wary of global risk
 * Bond prices rise across curve
 (Updates to close, adds quote)
 By Jennifer Kwan
 TORONTO, July 12 (Reuters) - The Canadian dollar fell on
Monday due in part to soft oil prices, while investors were
slightly cautious about Bank of Canada surveys that showed
upbeat business sentiment but worries about the global
 The second-quarter surveys showed businesses were
optimistic in their outlook for sales, investment and hiring,
but their enthusiasm was tempered by fears that global
uncertainties would hurt economic recovery.
 In the business survey, companies reported for the first
time in two years that past sales activity had improved. But
the balance of opinion on future sales -- the difference
between the percentage predicting higher sales minus those
expecting a drop -- fell to 24 percent from 44 percent in the
first quarter. [ID:nN12185840]
 "The market has been a little cautious in response to the
business outlook survey," said Eric Lascelles, chief Canada
macro strategist at TD Securities, referring to the future
sales headline.
 "The market generally is going to be on pins and needles
leading up to the Bank of Canada next week," he added.
 The surveys showed some slowing in the momentum of the
recovery overall, but there were certainly enough positive
aspects, said Doug Porter, deputy chief economist at BMO
Capital Markets.
 "The main message is that the recovery still seems to be on
solid ground at least in Canada," he said.
 The Canadian dollar CAD=D4 finished at C$1.0375 to the
U.S. dollar, or 96.39 U.S. cents, down from Friday's finish at
C$1.0337 to the U.S. dollar, or 96.74 U.S. cents. Monday's drop
followed a gain of 2.8 percent last week.
 The Bank of Canada's business outlook and senior loan
officer surveys are seen as key reports ahead of the July 20
interest rate announcement.
 Yields on overnight index swaps, which trade based on
expectations for the Bank of Canada's key policy rate, showed
the market sees an 82 percent chance of a July rate hike.
 TD's Lascelles said a generally "risk off" tone was another
key factor pressuring the Canadian dollar.
 "It seems to me the motivation is the risk-off trade. The
commodity currencies are suffering a little as various
commodities ease on the day," he said.
 U.S. crude oil futures ended lower, snapping a three-day
winning streak. [O/R]
 The currency touched a session low of C$1.0387 to the U.S.
dollar, or 96.27 U.S. cents, as North American equity markets
notched a lackluster session following big gains last week.
[.N] [.TO]
 Canadian bond prices advanced, reflecting a pause after a
sharp move following stellar domestic jobs data on Friday, said
Kam Bath, fixed income strategist at RBC Capital Markets.
 The economy added a whopping 93,200 jobs in June, easily
outstripping market predictions for a 15,000-job gain and
contradicting other recent data suggesting Canada's galloping
economic recovery was slowing. [ID:nN09261751]
 "It's just a bit of unwinding from last week's sharp move,"
Bath said.
 "That strong employment report pretty much bakes in a July
rate hike. Really, no one is looking for anything different
than that."
 The two-year bond CA2YT=RR rose 7 Canadian cents to yield
1.683 percent, while the 10-year bond CA10YT=RR climbed 24
Canadian cents to yield 3.202 percent.
 Canadian bonds outperformed their U.S. counterparts across
the curve. The Canadian 2-year bond CA2YT=RR was 103 basis
points above its U.S. counterpart, compared with about 108
basis points in the previous session.
 (Reporting by Jennifer Kwan; editing by Rob Wilson)