CANADA FX DEBT-C$ adds to gains, touches 11-week high

Tue Apr 14, 2009 5:49pm EDT
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 * C$ closes at 82.37 U.S. cents
 * Bonds higher across the board
 (Adds details, quotes)
 TORONTO, April 14 (Reuters) - The Canadian dollar touched
its highest level against the U.S. currency in nearly 11 weeks
on Tuesday, benefiting from continuing optimism that the worst
of the global financial crisis may be over.
 The currency rose as high as C$1.2062 to the U.S. dollar,
or 82.90 U.S. cents, its highest level since Jan. 28, moving
further away from the multi-year lows it hit in early March
when falling equities sent investors flocking to the greenback
because of its perceived safe haven status.
 "We've seen markets become a bit more confident that
possibly the worst in the economic downturn is over," said Paul
Ferley, assistant chief economist Royal Bank of Canada,
referring to a broader theme of risk appetite.
 "With that, you've got financial markets, including the FX
markets, starting to take on a bit more risk."
 But Ferley warned the strength is still "very tentative"
and is reliant on confirmation that the worst of the economic
decline is past.
 The currency finished at C$1.2140 to the U.S. dollar, or
82.37 U.S. cents, up from C$1.2193 to the U.S. dollar, or 82.01
U.S. cents, at Monday's close.
 The rise in the currency can also be attributed to
technicals, with the unit gaining momentum after piercing a key
level of C$1.2100, said Steve Butler, director of foreign
exchange trading Scotia Capital.
 "I do think some flows came into Canada today," said
Butler. "It looks like the market was caught the wrong way and
a lot of the stop losses were traded."
 The next Canadian data that may attract investor attention
is Thursday's February manufacturing sales report and the
consumer price index data for March due on Friday.
 The CPI report will be the last major piece of data for the
Bank of Canada to consider ahead of its key interest rate
announcement on April 21.
 The central bank cut its key rate to a historic low of 0.5
percent in March and has signaled it may take extra steps to
pump money into a system that remains short of credit.
 Canadian bond prices were higher across the curve, tracking
a move by the bigger U.S. market, as a sharp pullback in U.S.
retail sales offered a stark reminder of the economy's
weakness. [ID:nN14435015]
 "With equities down you've got some monies moving into
fixed-income markets in the U.S.," said Ferley. "That's
contributing to a bit of rally in bonds and that is spilling
over into the Canadian bond market."
 The two-year bond was up 3 Canadian cents at C$100.33 to
yield 1.092 percent, while the 10-year bond climbed 20 Canadian
cents to C$107.25 to yield 2.917 percent.
 The 30-year bond was higher by 25 Canadian cents at
C$123.90 to yield 3.636 percent. In the United States, the
30-year treasury yielded 3.6607 percent.
 Canadian bonds mostly underperformed their U.S.
counterparts, with the 30-year bond 2.5 basis points below its
U.S. counterpart, compared with 4.70 basis points on Monday.
 (Reporting by Jennifer Kwan and Frank Pingue; editing by Rob