CANADA FX DEBT-C$ rebounds a penny but still down on day

Tue Mar 15, 2011 10:54am EDT
 
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 * C$ pares losses to $1.0127
 * Bond prices soar on safety bid
 * Japan braces for potential radiation catastrophe
 (Adds details, updates prices)
 By Ka Yan Ng and Claire Sibonney
 TORONTO, March 15 (Reuters) - The Canadian dollar dived to
its lowest level in more than four weeks against the U.S.
dollar on Tuesday morning as the market rushed to the
safe-haven greenback on growing fears of a radiation
catastrophe in Japan.
 Aversion to risk also drove world stock markets lower with
Japanese equities falling more than 10 percent .N225, and
most North American stock indexes down around 2 percent. The
price of oil -- usually a leading factor in the Canadian
dollar's direction -- also dropped sharply. [MKTS/GLOB] [O/R]
 Japan faced a catastrophe after an earthquake-crippled
nuclear power plant exploded and sent low levels of radiation
floating towards Tokyo. [ID:nLDE72D2FT]
 "Going forward I think this crisis too will pass, the
market is trying to grapple for information and see the extent
of the contagion and just how bad it's going to be," said Firas
Askari, head of foreign exchange trading at BMO Capital
Markets.
 The Canadian dollar fell as low as C$0.9974 to the U.S.
dollar, or $1.0026, its weakest point since Feb. 11, plunging
out of the range between C$0.97 and C$0.98 that it had been
locked in for most of the past two weeks.
 "The whole stampede into risk aversion is forcing this U.S.
dollar/Canada correction," said Mike O'Neill, managing director
at Knightsbridge Foreign Exchange. He said that if the currency
breaches C$0.9980, it could set the stage for a return to
C$1.0240, a level not seen since December.
 He said the Canadian dollar has been "extremely overbought"
for some time, and that a correction has long been overdue.
 The move was dramatic and volumes were strong. By 10:15
a.m. (1415 GMT), the Canadian dollar had already rebounded a
penny from the day's low, trading at C$0.9875 to the U.S.
dollar, or $1.0127. But it was still down from Monday's close
of C$0.9726 to the U.S. dollar, or $1.0282.
 "There has been a good supply of U.S. dollars all the way
up, to be frank, the volumes have been pretty good and we're
seeing some longer-term players actually buying cheaper
Canada," Askari said.
 "I do like buying Canada. I just think you have to be very
nimble, especially on a day like today. Strategically you
probably want to start buying some Canadian dollars anywhere
above C$0.99."
 BONDS ADVANCE
 Bonds were well-supported by the flight-to-safety bid,
pushing prices higher across the curve. The two-year Canadian
government bond CA2YT=RR surged 22 Canadian cents to yield
1.557 percent, while the 10-year bond CA10YT=RR advanced 30
Canadian cents to yield 3.187 percent.
 Market players also looked ahead to Tuesday's U.S. Federal
Reserve policy meeting, which was expected to result in no
change in policy stance. The U.S. central bank meeting's
"importance is diminishing" said O'Neill, pointing to the focus
on Japan developments.
 Earlier, Canadian data that showed that productivity rose
more last year than in any year since 2005 was overshadowed by
the Japan news. [ID:nN15227998]
  (Reporting by Ka Yan Ng; editing by Peter Galloway)