CANADA FX DEBT-C$ higher, but equity weakness weighs
* 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 Friday.
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)
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