CANADA FX DEBT-C$ retreats from near parity on stock weakness

Fri Oct 15, 2010 11:58am EDT
 
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   * C$ falls to 99.21 U.S. cents
 * Bonds prices mixed following Bernanke, data
 (Updates to afternoon)
 By Claire Sibonney
 TORONTO, Oct 15 (Reuters) - The Canadian dollar retreated
after almost reaching parity against the greenback on Friday,
as weakness in equity markets overshadowed fresh signals that
U.S. monetary policy could ease further.
 U.S. financial stocks have been hit on concerns the
widening foreclosure crisis could not only affect corporate
profits but spread to credit markets and the overall economy.
[.N]
 Also threatening confidence, U.S. consumer sentiment
unexpectedly dipped in early October to its weakest level since
July. [ID:nN15191048]
 "The data suggests consumers still feel pretty gloomy about
their financial situation and therefore unlikely to spend a
whole lot on Canadian-made products, so that weighed on the
loonie," said Sal Guatieri, senior economist at BMO Capital
Markets.
 Federal Reserve Chairman Ben Bernanke said that high
unemployment and low inflation point to a need for more
stimulus, but he offered no details on the U.S. central bank's
next step. [ID:nN15187998]
 The expectation of quantitative easing by the Fed --
essentially creating new money to buy assets -- has been
driving the U.S. dollar lower and higher-yielding currencies,
such as Canada's, higher.
 "The Canadian dollar got an initial lift from Chairman
Bernanke's comments that suggest he is firmly planted in the
easing camp," added Guatieri.
 U.S. consumer price data for September, which came in
weaker than expected, also highlighted the risk of a
disinflationary environment, a key concern for the Fed.
 The Canadian currency rose as high as C$1.0012 versus the
U.S. dollar, or 99.88 U.S. cents, following Bernanke and the
U.S. data, before pulling back.
 At 11:40 a.m. (1540 GMT), the Canadian dollar stood at
C$1.0080 to the U.S. dollar, or 99.21 U.S. cents, down from
Thursday's finish at C$1.0060 to the U.S. dollar, or 99.40 U.S.
cents.
 Also supporting the currency were Canadian factory sales,
which jumped more than expected in August. [ID:nN15446129]
 Camilla Sutton, chief currency strategist at Scotia
Capital, stressed that the Canadian dollar is not currently
trading on its fundamentals.
 "It's really not a CAD story like it was in the spring when
we went to parity, this is very much a U.S. dollar weakness
story," she said. "As soon as the U.S. dollar weakness story
fades that will immediately fade the rally in CAD."
 Bernanke's comments also drove the Australian dollar --
Canada's sister commodity currency -- to surge above parity
with the greenback on Friday for the first time since flotation
in 1983. [FRX/]
 "I think the Canadian dollar stands a good chance of
remaining around parity," added Guatieri. "In the short term
though, it could suffer if there's increased concerns about the
U.S. foreclosure problems. That could weigh on equity markets
and drive up the U.S. dollar temporarily."
 BONDS MIXED
 Government bond prices were mixed with short-term issues
firmer and longer-term prices weakening.
 "They've gained at the short and mid-sections of the yield
curve because that is likely where the Fed will target its
asset purchases," said Guatieri.
 The two-year bond CA2YT=RR was up 3 Canadian cents to
yield 1.426 percent, while the 10-year bond CA10YT=RR shed 17
Canadian cents to yield 2.784 percent.
 Prices of longer-dated issues tracked U.S. Treasury
securities lower as yields rose after the weak consumer price
data and Bernanke's speech led traders to bet the U.S. central
bank would try to create inflation. [US/]