CANADA FX DEBT-C$ rally clipped, bonds rise on dovish Carney

Mon Dec 13, 2010 5:09pm EST
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 * C$ ends at 99.07 U.S. cents
 * Touches highest level since Dec. 7
 * Bank Governor Carney's speech keeps investors cautious
 * Canadian bond prices flat to higher
 (Updates to close)
 TORONTO, Dec 13 (Reuters) - Canada's dollar rallied toward
a one-week high on Monday, boosted by a broadly weaker U.S.
dollar, but a dovish speech by Bank of Canada Governor Mark
Carney checked its gain.
 The Canadian dollar CAD=D4 reached as high as C$1.0028 to
the U.S. dollar, or 99.72 U.S. cents, its highest point since
Dec. 7, rising as the U.S. currency fell, partly because China
refrained from raising interest rates to quell inflation, which
helped to stoke global risk appetite. [FRX/] [ID:nTOE6BB00G]
 "It's broad U.S. dollar selling. If that wasn't the case on
the market today Canada would be very much weaker against the
U.S. dollar," said Sacha Tihanyi, currency strategist at Scotia
 "It's a day in which the U.S. dollar has very much fallen
out of favor."
 Analysts said upbeat Chinese economic data, including
industrial output and inflation figures, also helped send
commodity prices higher, which supported the Canadian
currency's rise. [ID:nBJL002113] [ID:nL3E6ND0F6] [O/R] [GOL/]
 The Canadian dollar finished at C$1.0077 to the U.S.
dollar, or 99.24 U.S. cents, up from Friday's finish of
C$1.0094 to the U.S. dollar, or 99.07 U.S. cents.
 Data that showed Canada's industrial capacity use pushed to
a higher-than-expected 78.1 percent in the third quarter,
suggesting businesses are coping with a stronger currency, gave
the Canadian dollar a lift as well. [ID:nN13189872]
 The key obstacle to the currency's rise was a speech by
central bank Governor Carney, who warned Canadians on Monday of
the risks inherent in what he predicted would be a prolonged
period of low interest rates in advanced economies.
 "For Canada, the biggest event of note was Mark Carney's
speech. That was probably a factor that helped to drive a bit
of Canadian dollar weakness in the market -- interpreted to be
a little bit more on the dovish side," Tihanyi said.
 Canadian bond prices were largely flat to higher,
rebounding with U.S. Treasuries, which found buyers in a market
in which they had recently been pummeled.
 The interest-rate sensitive two-year bond CA2YT=RR rose
10 Canadian cents to yield 1.666 percent, boosted by Carney's
statement that global interest rates are likely to remain low
for a prolonged period.
 The 10-year bond CA10YT=RR rose 57 Canadian cents to
yield 3.238 percent.
 (Reporting by Ka Yan Ng and Jennifer Kwan; editing by Peter