CANADA FX DEBT-C$ rises for fourth session, helped by stocks

Wed May 12, 2010 4:48pm EDT
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   * Closes at C$1.0198 to the US$, or 98.06 U.S. cents
 * At 8-year high against euro
 * Spain's tough austerity moves boost global risk assets
 * Weak oil price stalls further gains in C$
 * Bond prices weakens; long end outperforms U.S.
 (Adds analyst comments, updates to close)
 By Jennifer Kwan and Jeffrey Hodgson
 TORONTO, May 12 (Reuters) - Canada's dollar climbed for a
fourth straight session against its U.S. counterpart on
Wednesday, boosted by rallying equities and easing fears that
sovereign debt problems could spread in the euro zone.
 The currency CAD=D4 touched a high of C$1.0154 to the
U.S. dollar, or 98.48 U.S. cents, as global shares rose after
Spain outlined measures to cut its deficit, allaying fears
about Greek debt crisis contagion. [MKTS/GLOB]
 But the currency pulled back from its peak level as oil
prices dropped after government data showed rising U.S.
inventories. [O/R]
 "Risk appetite returning overnight (is) helping the
Canadian dollar. However, we struggled to follow through with
the initial strength," said Matthew Strauss, senior currency
strategist at RBC Capital Markets.
 "Part of the reason being that the oil backdrop is not as
supportive as the overall risk backdrop."
 The currency finished at C$1.0198 to the U.S. dollar, or
98.06 U.S. cents, up from C$1.0218 to the U.S. dollar, or 97.87
U.S. cents, at Tuesday's close. Wednesday marked the currency's
fourth straight close higher against the greenback.
 The Canadian dollar also made further gains against the
euro, rising as high as C$1.2849, or 77.83 euro cents, its
strongest level since July 2001.
 The currency has gained 2.4 percent so far this week as
investors focused on the country's relatively healthy
fundamentals, including its fiscal position, and strong data
such as last week's solid domestic jobs report. [ID:nN0793308]
 "The Canadian dollar is one of the best performing
currencies this year, while the euro is the weakest major
currency," said Sal Guatieri, senior economist at BMO Capital
 "Given the fiscal and monetary policy backdrop, clearly
Canada's fiscal and monetary house is in better shape than
 Analysts said the focus on global risk appetite
overshadowed economic data that showed Canada's trade surplus
fell sharply and unexpectedly in March due to a drop in prices
for energy exports, while new home prices continued their
steady rise. [ID:nN12181372]
 RBC's Strauss said oil's weak performance on Wednesday kept
the currency locked in range of C$1.0150-C$1.02 to the U.S.
 "There's still downward momentum. My guess is we'll first
see a test of the support line rather than the resistance line
so testing C$1.0122 rather than C$1.0289," said Strauss.
 "However, the move going forward will depend very much on
global risk sentiment."
 Canadian government bond prices were lower across the curve
as European debt worries eased, prompting investors to seek
riskier assets such as stocks.
 "It's following along with the U.S. Treasury market with
investors just more comfortable buying riskier assets," said
BMO's Guatieri.
 The two-year government bond CA2YT=RR fell 12.5 Canadian
cents to yield 2.02 percent, while the 10-year bond CA10YT=RR
fell 15 Canadian cents to yield 3.602 percent.
 Canadian government bonds outperformed U.S. issues at the
long end, with the Canadian 10-year yield 2.8 basis points
above its U.S. counterpart, compared with 5.3 basis points on
 Canada's C$3 billion auction of three-year bonds on
Wednesday met with healthy appetite, buoyed by the country's
strong fundamentals and easing worries over European sovereign
debt. [ID:nN12203506]