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