March 12, 2009 / 8:57 PM / 9 years ago

CANADA FX DEBT-C$ fueled by stocks rally, bonds edge up

* Stocks rally supports currency

* C$ sports wide daily range C$1.2767-C$1.2957

* Market focus on Friday’s Canadian trade, employment data (Updates to close)

By Ka Yan Ng

TORONTO, March 12 (Reuters) - The Canadian dollar strengthened against the U.S. currency on Thursday, fueled by higher oil prices and gains in equity markets that improved market confidence.

The currency finished not too far off the session’s high at C$1.2791 to the U.S. dollar, or 78.18 U.S. cents, up from C$1.2862 to the U.S. dollar, or 77.75 U.S. cents, at Wednesday’s close.

The Canadian dollar pushed as low as C$1.2957 to the U.S. dollar, or 77.18 U.S. cents, overnight, and ran close to that level midmorning after the Swiss National Bank said it was intervening in the foreign exchange market and cut interest rates. [ID:nLB459488]

But the influence of equity markets took over, spurred by some positive news, and the currency rallied as high as C$1.2767 to the U.S. dollar, or 78.33 U.S. cents.

Factors such as better-than-expected U.S. retail sales figures, another U.S. bank trumpeting profitability in the first two months of the year, and relief that Standard & Poor’s credit rating cut for General Electric was just one notch lent some optimism to the marketplace.

The rising price of oil also played a supporting role, gaining 11 percent to above $46 a barrel. Oil is a key Canadian export and the Canadian currency often tracks its movements.

Lately, the currency has also taken to moving in the same direction as equity markets as a barometer of risk appetite.

“Crude oil prices are up as well and that’s helping, but the main focus is still on equity markets,” said George Davis, chief FX Technical Analyst at RBC Capital Markets.

“With those two markets lining up in favor of the Canadian dollar we have seen some follow-through, which is fairly significant especially in the context of Monday’s failure to sustain the break above the C$1.30 level.”

Earlier this week, the currency hit C$1.3066 to the U.S. dollar, its lowest level since September 2004.

The currency, however, is likely to remain rangebound ahead of the release of top-tier monthly statistics -- jobs and trade -- on Friday.

BONDS POST SMALL GAINS

Canadian bond prices edged higher on Thursday, following U.S. counterparts, as demand in a U.S. auction for 30-year bonds was well-received.

The 30-year bond climbed 55 Canadian cents to C$123.92 to yield 3.637 percent. The U.S. 30-year bond yielded 3.622 percent.

But gains were curbed by a sharp rise in equity markets.

With little Canadian economic news so far this week, Canadian government debt has turned to global news for direction. Friday’s Canadian monthly jobs and trade data remain the major risk.

A Reuters survey found that analysts expect the economy to have shed 52,500 jobs in February after a drop of 129,000 jobs in January, while trade data for January is expected to show Canada’s trade deficit more than doubled to C$1 billion.

“The market is already assuming a weak report tomorrow especially when Finance Minister (Jim) Flaherty says the news is not going to be good. The market is more or less braced for a bad number,” said Doug Porter, deputy chief economist at BMO Capital Markets.

Poor figures would contribute to an already pessimistic view of the economy in the first quarter. Two major Canadian banks noted in their economic forecasts that Canada may face a deeper recession than previously thought as the global crisis hits exports and commodity prices. [ID:nN12367835]

The two-year bond edged up 1 Canadian cent at C$102.99 to yield 0.985 percent. The 10-year bond rose 5 Canadian cents to C$107.35 to yield 2.939 percent. (Reporting by Ka Yan Ng; Editing by Jeffrey Hodgson)

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