CANADA FX DEBT-C$ higher, but equity weakness weighs

Wed Apr 15, 2009 10:57am EDT
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 * C$ slightly stronger, but soft stock market limits gain
 * Near 10-week high hit on Tuesday
 * Bonds flat across the curve
 By Jennifer Kwan
 TORONTO, April 14 (Reuters) - The Canadian dollar rose
against the U.S. currency on Wednesday, but gains were limited
by weaker equity markets and investor caution about the impact
of upcoming earnings reports.
 The currency traded in a range of C$1.2186 to the U.S.
dollar, or 82.06 U.S. cents, and C$1.2076 to the U.S. dollar,
or 82.81 U.S. cents, falling back after hitting its highest
level since late January on Tuesday.
 The Canadian unit has taken much of its direction from
swings in the U.S. dollar, said David Bradley, director of
foreign exchange trading at Scotia Capital. The greenback was
slightly firmer on Wednesday as global stock market weakness
spurred safe haven buying.
 "The market is having a tough time deciding on which way
the U.S. dollar is going to move," he said.
 "There is some confusion based on some of the earnings
reports coming out this week."
 A broader theme of risk appetite has dominated markets
recently with equity markets rallying on optimism the worst of
the economic downturn has past. Bank earnings have been closely
watched for signs of recovery in the financials industry.
 UBS UBSN.VX said on Wednesday it would post a
first-quarter loss of $1.7 billion and said it would cut
thousands more jobs. [ID:nSP172565] The UBS news sapped some
optimism after Goldman Sachs posted a surprisingly good
quarterly profit earlier this week.
 Economic concerns were also fanned after weak U.S. retail
sales data on Tuesday. [MKTS/GLOB]
 With no economic data of note in Canada on Wednesday,
markets looked to government data that showed U.S. consumer
prices fell unexpectedly in March, recording their first annual
drop since 1955. [ID:nN14446536]
 The reading could revive the "threat of deflation," said
Sebastien Lavoie, economist of Laurentian Bank Securities.
 "The point is with retails sales being so weak, like
yesterday, you start to wonder how retailers will react to
that," he said.
 "Will they lower prices again? If they do so, that means
anemic CPI reports in the upcoming months."
 Deflation is a broad-based decline in prices that can
undercut an economy by leading consumers to hold off purchases
in the hopes of even lower prices.
 At 10:11 a.m. (1411 GMT), the currency was at C$1.2088 to
the U.S. dollar, or 82.73 U.S. cents, up from its Tuesday close
at C$1.2140 to the U.S. dollar, or 82.37 U.S. cents.
 Later this week, Canadian data that may attract investor
attention include Thursday's February manufacturing sales
report and the consumer price index data for March due on
 Canadian bond prices were mixed across the curve, with
weakness at the short end and prices slightly higher at the
long end.
 The bond price action defied the normal reaction to weak
economic data, partially offset by lingering optimism about the
economic outlook, said Mark Chandler, fixed income strategist
RBC Capital Markets.
 "There's still that lingering influence of a big bounce in
the equity market, some improvement if you look at indicators.
They're getting less bad," he said.
 The two-year bond was down 4 Canadian cents at C$100.29 to
yield 1.111 percent, while the 10-year bond rose 6 Canadian
cents to C$107.28 to yield 2.913 percent.
 The 30-year bond ticked up 2 Canadian cents at C$123.92 to
yield 3.635 percent. In the United States, the 30-year Treasury
yielded 3.6590 percent.
 (Reporting by Jennifer Kwan; Editing by Jeffrey Hodgson)