CANADA FX DEBT-C$ rises for 2nd day, can't break key levels

Fri Aug 13, 2010 5:19pm EDT
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   * C$ ends at 96.02 U.S. cents
 * Bonds mixed
 (Adds details)
 By Ka Yan Ng
 OTTAWA, Aug 13 (Reuters) - The Canadian dollar seesawed
against the U.S. dollar on Friday on mixed narket reaction to
economic data, but it finished moderately higher for a second
straight session.
 Global risk appetite improved overnight on stellar German
growth data, but concerns about weaker economies in the euro
zone didn't go away.
 U.S. inflation and consumer data initially hurt sentiment
in the Canadian dollar, driving the currency to a session low
at C$1.0440 to the U.S. dollar, or 95.79 U.S. cents.
[ID:nN13180040]  [ID:nLDE67C0YX]
 It then rebounded to hold in a thin range between
C$1.04-C$1.0425 for the rest of the day.
 The Canadian dollar CAD=D4 finished at C$1.0415 to the
U.S. dollar, or 96.02 U.S. cents, up from Thursday's close at
C$1.0428 to the U.S. dollar, or 95.90 U.S. cents.
 "It is telling the Canadian dollar tested C$1.0350 twice
and couldn't break below that," said Matthew Strauss, senior
currency strategist at RBC Capital Markets. "So going into next
week it will be quite interesting to see whether the market is
able to break higher or lower."
 He said he was leaning towards more weakness as markets
remain jittery and "it wouldn't take much to see another round
of sell-offs globally." That will probably lead to the currency
to test C$1.05, he said.
 Canadian bond prices were mixed throughout the session.
Long-dated issues were up but off highs, continuing a general
rally this week as concerns grew about the strength of the
world recovery. Short-dated maturities lagged as equity markets
were little changed.   
 "We're seeing long-term yields plunge here to levels we
haven't seen in quite some time. The bond market is sending a
pretty clear signal that it is much more worried about the weak
growth outlook rather than the budget deficit outlook," said
Doug Porter, deputy chief economist at BMO Capital Markets.
 "Today's U.S. numbers did really nothing to ease those
concerns. When you dig beneath the surface, the bigger story
here is that growth is softening and core inflation is still at
its lowest levels since the '60s."
 Porter said Canadian policymakers should "keep their
options open for the 2011 budget and not lock in a hard stop on
stimulus just yet." He argued that stimulus measures have been
effective so far as jobs have been created and the direct
impact of government spending and investment has added to GDP
 Meanwhile, the shaky nature of the U.S. recovery is still
apparent, and it could spill over to Canada, the United States'
largest trading partner, he added.
 The Canadian government has said it will halt stimulus
spending in March 2011.  [ID:nN0999374]
 The two-year bond CA2YT=RR was down 4 Canadian cents to
yield 1.375 percent, while the 10-year bond CA10YT=RR was up
25 Canadian cents to yield 2.984 percent. Canadian bonds mostly
underperformed their U.S. counterparts across the curve.
 (Reporting by Ka Yan Ng; editing by Peter Galloway)