November 15, 2010 / 9:41 PM / 7 years ago

CANADA FX DEBT-C$ edges up as data offset by stocks, commodities

4 Min Read

* C$ closes at 99.12 U.S. cents

* U.S. retail sales data supports

* Softer commodities, stocks weigh

* Canadian bond prices track Treasuries down

(Updates to close)

By Claire Sibonney

TORONTO, Nov 15 (Reuters) - Canada's dollar was little changed against a broadly stronger greenback on Monday, as the benefit of upbeat U.S. data was undermined by struggling equity and commodity markets.

Sales at U.S. retailers rose more than expected in October to post their largest gain in seven months, further evidence the economy was regaining strength after hitting a soft patch in the summer. [ID:nN15239736]

"U.S. retail sales came in relatively strong, so it removed some of the headwind on the Canadian dollar," said Charles St-Arnaud, Canadian economist and currency strategist at Nomura Securities International in New York.

The data was supportive to both the Canadian and U.S. currencies, which have recently been trading off similar fundamentals.

The U.S. dollar index rose to a six-week high as worries about Ireland's ability to repay its debt and concerns its problems may spread throughout the euro zone rekindled the greenback's appeal as a safe haven. [FRX/]

St-Arnaud said Canada's advantage is the growing expectation that the Bank of Canada will resume its rate-hiking campaign early next year.

"Our expectation is that the Bank of Canada could hike rates as soon as March, while the market still seems to be pricing in a later date, around May."

In a Reuters poll last month, only five of the country's 12 primary dealers saw interest rate hikes resuming in the first quarter of 2011. [CA/POLL]

The Canadian dollar CAD=D4 finished the North American session at C$1.0089 to the U.S. dollar, or 99.12 U.S. cents, just two pips up from C$1.0091 to the U.S. dollar, or 99.10 U.S. cents, at Friday's close.

Weighing on the commodity-linked currency were softer stock and natural resource prices. North American equities fell into negative territory and oil futures ended lower in a late sell-off. [.N] [.TO] [O/R]

"The U.S. dollar is actually making some strides here, but the Canadian dollar is up a little and the story here is that it is still firmly embedded in the range of the last several weeks," said Eric Lascelles, chief Canada macro strategist, at TD Securities.

News that BHP Billiton had officially scrapped its $39 billion bid for Canadian fertilizer giant Potash Corp. had minimal impact on the Canadian dollar as the move was largely priced in.

Ottawa had blocked the biggest proposed takeover of the year earlier in the month, and the Canadian dollar had retreated on assumptions that the bid would not be revived. [ID:nSGE6AD04O]

Bond Yields Up

Canadian government bond yields rose in concert with U.S. Treasuries, as traders unwound positions taken in advance of the Federal Reserve's second program of long-term asset purchases. [US/]

The two-year bond CA2YT=RR slipped 10 Canadian cents to yield 1.635 percent, while the 10-year bond CA10YT=RR shed 93 Canadian cents to yield 3.137 percent.

The positive U.S. data further detracted from the safe-haven appeal of government debt.

"The good numbers in the U.S. mean there should be positive spillover in the Canadian economy. That could mean that the Bank of Canada could hike rates sooner than what the market was expecting a week or two ago," added Nomura's St-Arnaud. (Additional reporting by Ka Yan Ng; editing by Jeffrey Hodgson)

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