CANADA FX DEBT-C$ hits 2-1/2 year high, boosted by commodities

Wed Jan 12, 2011 5:24pm EST
 
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 * C$ ends session at C$0.9869, or $1.0133
 * C$ peaked at C$0.9848, highest since May, 2008
 * Consolidated Thompson bid helps sentiment
 * Bond prices fall across the curve as risk appetite rises
 (Updates, adds details, comments)
 By Solarina Ho
 TORONTO, Jan 12 (Reuters) - The Canadian dollar broke
through a key resistance level to hit a 2-1/2 year high against
its U.S. counterpart on Wednesday, as a positive development in
Europe's debt crisis helped lift higher-yielding currencies.
 The Canadian dollar strengthened along with commodity
prices and global equity markets after healthy demand for
Portuguese bonds temporarily eased worries over the region's
debt problems. Oil, copper and gold prices all rose. [O/R]
[MET/L] [GOL/]
 Canada is a major producer of natural resources and its
currency often rises as commodity prices gain.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
 For a graphic on the link between the Canadian dollar and
commodity prices, see:
r.reuters.com/tyr95r
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
 The Canadian dollar CAD=D4, which climbed for the 12th
straight session, peaked at C$0.9848 to the U.S. dollar, or
$1.0154 earlier in the session, its best level since May 2008.
[CAD/]. Analysts said the move through last week's high of
C$0.9889 helped trigger the jump.
 "We had one of those risk-on days," said RBC Capital
Markets currency strategist David Watt.
 "It was largely oriented toward the risk sentiment and the
events that were happening in Europe."
 News late on Tuesday that U.S.-based Cliffs Natural
Resources (CLF.N: Quote) agreed to buy Canada's Consolidated Thompson
Iron Mines CLM.TO for C$4.07 billion was also seen as
supportive. Acquisitions of Canadian companies by foreigners
tend to strengthen the Canadian dollar.
 "It adds in general to a positive backdrop for the Canadian
dollar overall," said Watt, but added: "If there was
significant M&A flow, I might've expected the Canadian dollar
to do somewhat better ... They don't necessarily want to buy
near the peak for the Canadian dollar, or the trough for
USD/CAD."
 The Canadian dollar eased away from the 2-1/2 highs to
finish the day at C$0.9869 to the U.S. dollar, or $1.0133,
still up from Tuesday's North American finish of C$0.9897 to
the U.S. dollar, or $1.0104.
 Some analysts believe the currency could soon slide before
climbing further, hurt by traders' reluctance to test
near-record highs. [ID:nN12235221]
 Finance Minister Jim Flaherty said on Wednesday the
Canadian dollar reflected the country's healthy fiscal position
and warned not to expect a return to the days where it was
undervalued. [ID:nN12262031]
 BONDS DECLINE ON RISK APPETITE
 Canadian bond prices were lower across the curve as North
American investors in general lost interest in safe-haven debt.
[US/]
 The two-year bond CA2YT=RR fell 3 Canadian cent to yield
1.750 percent, while the 10-year bond CA10YT=RR dropped 28
Canadian cents to yield 3.260 percent.
 "The bigger risk-on theme is stemming from the fact that
there's a successful Portuguese auction, there is some more
favorable comments coming out of the euro zone peripherals,"
said Ian Pollick, a portfolio strategist at TD Securities.
 "Risk appetite is returning to the market somewhat and
yields are suffering as a consequence."
 Even so, Canada's auction of five-year bonds on Wednesday
met with decent demand. The sale of C$3.2 billion government
bonds, due June 1, 2016, produced an average yield of 2.674
percent, up from 2.182 percent during the previous auction in
November. [ID:nN12220193]
 (Editing by Jeffrey Hodgson)