CANADA FX DEBT-C$'s upward march stalls as market eyes rates

Thu Oct 15, 2009 4:45pm EDT
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 * C$ finishes at 96.67 U.S. cents
 * Pulls back from near 15-month high
 * Looming interest rate decision in focus
 * Bond prices mixed
 (Updates to close, adds details, quotes)
 By Jennifer Kwan
 TORONTO, Oct 15 (Reuters) - Canada's currency fell against
the U.S. dollar on Thursday, backing away from a near 15-month
high as the market paused ahead of the Bank of Canada's
interest rate announcement next week.
 During the overnight session, the Canadian currency
CAD=D3 rose to C$1.0207 to the U.S. dollar, or 97.97 U.S.
cents, which was its highest level since July 2008.
 That rally built on momentum from Wednesday's North
American session after upbeat U.S. corporate results boosted
investor optimism about a global recovery and their appetite
for risk.
 But the market slammed into reverse as the day progressed
and focus shifted to next Tuesday's Bank of Canada policy
announcement, which investors will examine for clues about the
timing of the next interest rate hike.
 "I think a lot of people have essentially taken profit
realizing that's a big risk on the horizon," said Camilla
Sutton, currency strategist at Scotia Capital.
 "I think it's a bit of give-back after a very substantial
 The Canadian dollar finished at C$1.0345 to the U.S.
dollar, or 96.67 U.S. cents, down from C$1.0259 to the U.S.
dollar, or 97.48 U.S. cents, at Wednesday's close.
 The weakness follows a mostly uninterrupted rise in the
currency this month that took it within striking distance of
rising above the U.S. dollar for the first time since July
  Despite the retreat, some analysts see the Canadian dollar
continuing its ascent, including prominent commodities and
currency analyst Dennis Gartman.
 "I think it's a long-term bull market in Canada's favor,"
he said in an interview on the sidelines of a hedge fund
industry event in Toronto on Thursday.
 "Canada has stuff. Canada has natural gas, Canada's got
coal, Canada's got wheat, Canada's got canola, Canada's got
uranium, Canada's got water, and the world needs these
 Canadian bond prices were mixed across the curve with the
short end flat to slightly higher and long-dated bonds lower.
 There has been a relatively big backup in yields at the
short end due to recent data that showed Canada's economy added
six times more jobs than expected in September, said Mark
Chandler, fixed income strategist at RBC Capital Markets.
 "There's a feeling that as we head into the (Bank of
Canada's) meeting next week you might get some of that unwound.
Yields may start to edge down a little bit. That seems to be
what's supporting the short end."
 He said yields at the long end are staying up despite a
Canadian 30-year bond auction that went reasonably well. "The
reason why yields have been up is really the general firmness
of equity markets," he added.
 The Bank of Canada held a C$1.5 billion auction of 4.0
percent Government of Canada bonds due June 1, 2041  on
Thursday. [ID:nTOR006831]
 The two-year bond CA2YT=RR was little changed, up 3
Canadian cents at C$99.09 to yield 1.688 percent, while the
30-year bond CA30YT=RR sank 55 Canadian cents to C$116.40 to
yield 4.012 percent.
 The Canadian market mostly outperformed U.S. Treasury
bonds. The two-year Canadian yield was about 74 basis points
above its U.S. counterpart, compared with around 78 basis
points on Wednesday.
 (Additional reporting by Pav Jordan; editing by Peter