CANADA FX DEBT-C$ plods higher, nears par with US dollar

Wed Dec 15, 2010 5:02pm EST
 
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 * C$ comes within a tick of par, ends at 99.60 U.S. cents
 * Canadian bond prices rise across curve
 * Two-year bond auction attracts healthy demand
 (Updates to close)
 By Ka Yan Ng
 TORONTO, Dec 15 (Reuters) - The Canadian dollar touched its
highest point in a month and came within a tick of parity with
the U.S. currency on Wednesday, helped by optimism spurred by
bullish North American economic data.
 The Canadian dollar CAD=D4 finished at C$1.0040 to the
U.S. dollar, or 99.60 U.S. cents, rising from Tuesday's close
of C$1.0065 to the U.S. dollar, or 99.35 U.S. cents. The
currency has finished incrementally higher in each of the last
six sessions.
 "It's just squeezing higher. We're in an environment where
we are used to 120-point moves in a day and we're trapped down
now to 40 or 50," said Michael O'Neill, managing director at
Knightsbridge Foreign Exchange.
 "The overall trend is for a higher Canada...but it's still
vulnerable to quirky one-off trades."
 The currency drew support from data that set the stage for
steady but tame economic growth in the final months of this
year as Canadian factory sales grew faster than expected in
October, while the home resale market appeared stable in
November. [ID:nN15123908]
 A heavy slate of U.S. data also added support. U.S.
industrial production rebounded in November and consumer prices
were up mildly in the same month, suggesting an acceleration in
the pace of the recovery but not one strong enough to prevent
the U.S. Federal Reserve from completing its bond buying
program. [ID:nN15122981]
 "The Canadian dollar is making a bit of a run. It's hugely
a data-heavy day more than anything else, and that may be
contributing to markets to some extent. Canada had quite an
impressive manufacturing out-turn," said Eric Lascelles, chief
macro strategist at TD Securities.
 "From a purely economic perspective the market is feeling
better and the Canadian dollar is benefiting from that. But
it's not something that the entire financial market is taking
heed of."
 Main equity market indexes were lower in both Canada and
the United States on Wednesday, and commodity prices were
mixed.
 The Canadian dollar jumped as high as C$1.0001 to the U.S.
dollar, or 99.99 U.S. cents, its highest level since Nov. 11,
which was the last time the Canadian dollar was on a
one-for-one footing with the U.S. currency. Then it quickly
retreated.
 Analysts say the Canadian dollar may touch parity with the
U.S. dollar again this year but it will have a hard time
holding there. A Reuters foreign exchange poll this month found
global strategists expect the Canadian dollar be on a par with
the greenback three and six months from now. [CAD/POLL]
  "It's going to be tough slugging and I don't think there's
going to be enough juice to do it before yearend," O'Neill
said.
 SOLID DEMAND IN 2-YR BOND AUCTION
 Canada's auction of two-year government bonds met with
healthy appetite on Wednesday, with results in line with recent
auctions across the yield curve.
 The sale of C$3 billion of government of Canada bonds, due
March 1, 2013, produced an average yield of 1.787 percent, up
from 1.556 percent at the previous auction in November.
 Bids from primary dealers totaled C$6.935 billion,
resulting in a bid-to-cover ratio of 2.312, lower than the 2.45
of the previous two-year auction but roughly in line with other
two-year sales over the past year, highlighting the steady
appetite for short-dated issues. <CAGOVT/1>
 The ratio is a gauge of investor demand and a reading above
2 typically suggests a healthy appetite.
 "In the last couple of weeks, the Bank of Canada has shown
no inclination to shift towards a rate hike so there's a
greater comfort holding short-dated bonds and perhaps that
contributed to the success of the auction," Lascelles said.
 "But truth be told, Canadian auctions have generally gone
pretty well all the way through. No one is choking on any
supply."
 The interest-rate sensitive two-year bond CA2YT=RR edged
4 Canadian cents higher to yield 1.733 percent, while the
10-year bond CA10YT=RR climbed 15 Canadian cents to yield
3.332 percent.
 (Editing by Peter Galloway)