CANADA FX DEBT-C$ weakens, bonds up, after data, Japan quake

Mon Mar 14, 2011 10:01am EDT
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 * C$ falls to $1.0260
 * Bonds firm across curve in flight to safety
 * Canada Q4 industrial capacity use misses estimates
 TORONTO, March 14 (Reuters) - The Canadian dollar weakened
against the U.S. dollar on Monday morning after data on
Canadian industry capacity use in the fourth quarter came in
below market expectations.
 Before the data was released, the Canadian dollar CAD=D4
was already weakening, injured by a selloff in world stocks and
falling oil prices on concerns about the economic impact of
Japan's devastating earthquake and tsunami. [MKTS/GLOB]
 Japan scrambled to avert a meltdown at a stricken nuclear
plant on Monday after a hydrogen explosion at one reactor and
exposure of fuel rods at another. [ID:nL3E7EC0D6]
 John Curran, senior vice president at CanadianForex, said
overall market sentiment was shying away from risk. He pointed
to dangers from continuing unrest in North Africa and the
Middle East, the impact of the Japan catastrophe, oil-price
weakness, and the "relatively benign" Canadian data as reasons
for the market to shift toward the safe-haven greenback.
 The Canadian currency fell as low as C$0.9753 to the U.S.
dollar, or $1.0253, weakening about 8 ticks from its level
before the data was released.
 By 9:21 a.m. (1321 GMT), it was at C$0.9747 to the U.S.
dollar, or $1.0260, down from Friday's North American session
close at C$0.9711 to the U.S. dollar, or $1.0298.
 Canadian industries ran at 76.4 percent of capacity in the
fourth quarter of 2010, barely edging up from a downwardly
revised 76.2 percent in the previous quarter, Statistics Canada
said. Economists surveyed by Reuters had forecast a 79.0
percent capacity-utilization rate in the fourth quarter.
 The weaker-than-expected figures adds to a recent spate of
soft Canadian data that has firmed expectations that the Bank
of Canada will not raise interest rates soon. According to a
calculation of yields on overnight index swaps, the central
bank's September rate-setting date is the first for which the
market is fully pricing in a rate increase.  BOCWATCH
 Curran said he expected the Canadian dollar to test the
long-term trendline U.S. dollar resistance level at C$0.9880 to
the U.S. dollar. But it will likely be a drift to that level,
rather than a quick drop, he said.
 "I think this will be a little bit of a corrective move
here. The longer-term trend is still positive for Canada but
the short-term factors are playing into a bit of the weakness,"
he said.
 Canadian government bonds caught a safe-haven bid, pushing
prices higher across the curve. The two-year Canadian
government bond CA2YT=RR rose 7 Canadian cents to yield 1.708
percent, while the 10-year bond CA10YT=RR  advanced 26
Canadian cents to yield 3.243 percent.
 (Reporting by Ka Yan Ng. Editing by Peter Galloway)