CANADA FX DEBT-C$ flees parity as greenback recovers

Fri Oct 15, 2010 4:46pm EDT
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 * C$ closes more than half cent lower at 98.83 U.S. cents
 * Bonds prices mixed following Bernanke, data
 (Updates to close)
 By Claire Sibonney
 TORONTO, Oct 15 (Reuters) - The Canadian dollar came close
to reaching parity with the greenback on Friday but then
retreated as U.S. Federal Reserve Chairman Ben Bernanke offered
no new details on monetary policy easing, leading investors to
bet the U.S. dollar was oversold.
 Bernanke said that high unemployment and low inflation
point to a need for more stimulus, but he failed to offer
specifics on the U.S. central bank's next step.
 "There was a meaningful reason why he left a lot of that
information off the table and the market speculates now that
it's because the Fed itself can't reach a consensus in terms of
how to push forward with special quantitative easing measures,"
said Jack Spitz, managing director of foreign exchange at
National Bank Financial.
 "That being said, the market is pulling back some of its
short dollar positioning ... given the fact that that boat is
particularly full right now and markets that are overextended
have a tendency to be subject to relatively significant price
 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 currency initially rose as high as C$1.0012
versus the U.S. dollar, or 99.88 U.S. cents, following
Bernanke's speech and soft U.S. inflation data -- a key concern
for the Fed -- before it pulled back.
 Bernanke's comments drove the Australian dollar -- Canada's
sister commodity currency -- to surge above parity with the
greenback on Friday for the first time since the Australian
dollar was allowed to float freely in 1983. [FRX/]
 The Canadian dollar closed the North American session at
C$1.0118 to the U.S. dollar, or 98.83 U.S. cents, more than
half a penny down from Thursday's finish of C$1.0060 to the
U.S. dollar, or 99.40 U.S. cents. It ended the week 0.05
percent lower, capping six straight weeks of gains.
 "Provided the market continues to bail on U.S. dollars from
Monday on, the downward pressure on dollar/Canada exists,"
Spitz said.
 He noted there is U.S. dollar support near the Canadian
dollar high hit on Thursday of C$0.9980, and at the 2010 high
of C$0.9931. He saw resistance between C$1.0180 and C$1.0220.
 Market focus is on the Bank of Canada interest rate
announcement on Tuesday and its Monetary Policy Report on
Wednesday, though many expect the central bank to stand pat on
rates for the rest of this year. [ID:nN15144891]
 Camilla Sutton, chief currency strategist at Scotia
Capital, stressed, however, that the Canadian dollar is not
currently trading on its own 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."
 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 Sal Guatieri, senior economist at BMO
Capital Markets.
 The two-year bond CA2YT=RR was up 1 Canadian cent to
yield 1.433 percent, while the 10-year bond CA10YT=RR shed 19
Canadian cents to yield 2.786 percent.
 Prices of longer-dated issues tracked U.S. Treasuries lower
after the weak consumer price data and Bernanke's speech.
 In new corporate issues, Sino Forest Corp TRE.TO on
Thursday sold $600 million of guaranteed senior notes in the
144a private placement market. [ID:nN14630461]
 (Editing by Peter Galloway)