CANADA FX DEBT-C$ slips as commodities fall, euro surges

Thu Jan 13, 2011 5:30pm EST
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   * C$ closed at C$0.9892, or $1.0109
 * Retreats from 2 1/2 year high reached on Wednesday
 * Bond prices mixed
 By Solarina Ho
 TORONTO, Jan 13 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Thursday, retreating further
from a 2-1/2 year high reached on Wednesday, hurt by commodity
and equity market weakness and a rally in the euro.
 North American stock markets and commodity prices struggled
following weak U.S. jobless claims data with oil, copper and
gold all declining. [O/R] [MET/L] [GOL/]
 Canada is a major producer of natural resources and its
currency often moves in tandem with commodity prices.
 But analysts said the currency was also hit by the euro's
surge against the U.S. dollar. The euro posted its biggest
gains in more than half a year after solid European debt
auctions and a warning of short-term inflation risks from the
European Central Bank. [FRX/]
 "There's a fair number of moving parts in the currency
market that are surrounding Canada, most notably coming from
the euro zone," said Jack Spitz, managing director of foreign
exchange at National Bank Financial.
 "The currencies that are typically most closely associated
with high risk -- being the Aussie or the Canadian dollar --
have been sold against the euro, in somewhat of an unwind of
the short euro positions that were held against those two
 The Canadian dollar CAD=D4 closed at C$0.9892 to the U.S.
dollar, or $1.0109, down from Wednesday's North American finish
of C$0.9869 to the U.S. dollar, or $1.0133.
 Analysts were next looking for direction from U.S. retail
sales data and Thomson Reuters/University of Michigan's reading
on January consumer sentiment coming out on Friday.
 Darren Richardson, a corporate dealer at CanadianForex,
said negative U.S. news could "spell some intraday selling of
the Canadian dollar as people move away from high risk assets
and commodity currencies."
 Richardson expects the currency trade within a range of
C$0.9850 and C$0.9950.
 Analysts are also awaiting Bank of Canada's interest rate
decision next week, with particular focus on the tone of
central bank chief Mark Carney.
 With the Canadian dollar near a 2 1/2-year high, many
expect the central bank to maintain a dovish tone out of fear
increasing rate expectations would spur further currency
  A stronger currency can act as a brake on growth in an
export-oriented country such as Canada and pressure an already
fragile economic recovery.
 A Reuters poll of 45 forecasters unanimously predicted the
Bank of Canada will keep interest rates unchanged when it
announces its decision Jan. 18. More than half the respondents
said the next rate hike would occur sometime in the first half
of 2011. [ID:nN1340408]
 Canadian government bond prices were mixed on Thursday.
 The interest-rate sensitive two-year bond CA2YT=RR was
down 4 Canadian cent to yield 1.773 percent, while the 10-year
bond CA10YT=RR gained 7 Canadian cents to yield 3.250
 (Editing by Jeffrey Hodgson)