June 15, 2010 / 9:06 PM / 7 years ago

CANADA FX DEBT-C$ firms as euro auctions boost risk appetite

 * C$ closes at C$1.0251, or 97.55 U.S. cents
 * Growth in Canada factory sales, productivity slows  (Adds analyst comment. Updates to close)
 By Claire Sibonney
 TORONTO, June 15 (Reuters) - The Canadian dollar strengthened on Tuesday, shrugging off mediocre North American data and tracking global stocks, commodities and other riskier currencies higher after successful European debt auctions raised confidence in the global economic recovery.
 Solid demand at debt auctions in Spain, Ireland and Belgium boosted the euro and gave financial markets some relief about the euro zone’s finances.  [FRX/] [ID:nLDE65E0WQ]
 “They (the Canadian dollar and euro) are both benefiting from increased global risk appetite, as has been the case recently,” said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets.
 The Canadian dollar closed the North American session at C$1.0251, or 97.55 U.S. cents, up from C$1.0325, or 96.85 U.S. cents, at Monday’s close. It firmed as high as C$1.0242.
 In a note to clients, RBC said a resistance level at C$1.0355 is expected to cap U.S. dollar rallies, setting the Canadian currency up for a re-test of support at C$1.0226.
 The commodity-linked currency was also supported by U.S. crude oil futures rising above $77 a barrel to their highest level since May 6, and rallying gold prices. [O/R] [GOL/]
 “We’re more of a follower than a leader on the current move. This is more being driven by a resurgence in European currencies,” said Shane Enright, executive director at CIBC World Markets.
 The day’s domestic data hardened expectations that second-quarter economic growth would be less robust than in the previous two quarters, but not bad enough to derail expectations that the Bank of Canada would continue to raise interest rates. [ID:nN15258387] The central bank’s next rate-setting announcement is July 20.
 Growth in Canadian manufacturing sales slowed in April and productivity came in lower than expected in the first quarter. [ID:nN15258387]
 “We had a combination of somewhat softer manufacturing data. Labor productivity was a little bit lower but if you look at labor costs, they’re actually negative on a year on year basis,” said Chandler.
 “Once again, nothing in the recent data has been significant enough to change the medium term outlook for the bank. They’ll continue to watch data right up until (July) 20th.”
 U.S. economic data was also fairly weak as manufacturing in New York state grew in June even as hiring slowed, while U.S. import prices recorded their largest decline in nearly a year in May. [ID:nN15253343]
 BONDS FALL, BUT OUTPERFORM U.S.
 With investors looking to riskier assets, safe-haven Canadian government bond prices were mostly lower.
 The two-year government bond CA2YT=RR was off 6 Canadian cents to yield 1.84 percent, while the 10-year bond CA10YT=RR lost 7 Canadian cents to yield 3.44 percent.
 “There’s an absence of headline worries coming out of Europe, at least for today, and the rally in equity markets is causing some residual damage in bonds but it’s happening most in the U.S.,” said Chandler. “The currency is also helping a little bit.”
 Canadian bonds outperformed U.S. Treasuries across the curve, with the 10-year yield 13 basis points above its U.S. counterpart, compared to 17 basis points above on Monday.
 In debt offerings, Quebec sold C$500 million of six-year notes in a reopening of an existing 3.50 percent issue, while Canada Housing Trust on Tuesday sold C$5.5 billion of five-year notes due June 15, 2015, according to term sheets seen by Reuters. [TNC-CAN]
 In corporate issuance, Loblaw Companies Ltd (L.TO) sold C$350 million of 10-year notes due June 18, 2020. [ID:nN1597869]
(Additional reporting by Ka Yan Ng and Jeffrey Hodgson; editing by Mario Di Simine )   

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