CANADA FX DEBT-C$ nudges upper barrier of its recent range
* C$ closes at C$0.9849 vs US$, or $1.0153
* Bond yields drift higher (Updates to close, adds analyst comments, details)
By Claire Sibonney
TORONTO, Feb 16 (Reuters) - Canada's dollar firmed against the greenback on Wednesday, helped by rallying equity and oil prices, but it failed to break out of the tight range in which it has been locked for weeks.
Pent-up demand for riskier assets pushed North American stock indexes to more than 30-month highs, while news that Iranian warships were en route to Syria through the Suez Canal rekindled tensions in the Middle East and sparked a surge in crude prices. [.N] [.TO] [O/R]
But those factors were not enough to lift the Canadian dollar from this week's range between C$0.9846 and C$0.9904. Over a longer term it's been trading in a C$0.9832-C$1.0060 range, often shrugging off equity and commodity price moves that would normally would have influenced it.
Mazen Issa, Canada macro strategist at TD Securities, said he expects the range-bound trade to continue until at least mid-year, when the U.S. economy starts picking up more steam, which could prompt the greenback to outperform Canada's currency.
"In the least ugly contest, Canada looks quite good ... the fiscal backdrop is relatively glamorous," Issa said.
"Investors are looking for even a bigger catalyst, at least a few months from now to see what happens with the U.S. economy."
Supporting Canada's currency was data that showed foreigners bought a record amount of Canadian stocks and bonds in December, led by burgeoning demand for safe-haven debt instruments. [ID:nN16279164]
A mixed bag of reports that showed a strong rise in producer prices and housing starts in the United States and weak factory sales in Canada did little to sway the currency one way or the other. [ID:nN16ST1] [id:nN16277118]
The Canadian dollar ended at C$0.9849 to the U.S. dollar, or $1.0153, up from Tuesday's North American session close at C$0.9897 to the U.S. dollar, or $1.0104.
"Tactically we remain bullish Canada, both against the U.S. dollar and on the crosses," said Jack Spitz, managing director of foreign exchange at National Bank Financial.
The 2011 high so far, C$0.9832, is a key resistance level for the Canadian dollar, followed by C$0.9780, he said.
Spitz added, however, that if the price of U.S. oil slips below $82.40, that could set the stage to sell the commodity-linked Canadian dollar.
Although hard pressed to find alternative drivers to commodity prices and equities, the Canadian dollar has been sitting relatively well-supported as market players hold to expectations that the Bank of Canada will boost interest rates in the first half of the year. [CA/POLL]
Friday's Canadian inflation data for January could help firm up expectations on the timing of the Bank of Canada's next rate hike after it stepped to the sidelines late last year after three successive rate increases.
Canadian bond prices eased across the curve, taking a cue from U.S. Treasuries in choppy price action, although yields held within recent ranges as nascent fears of rising U.S. inflation were tempered by a drop in industrial production. [US/]
The theme was consistent with Canadian bond yields backing up over the past two to three weeks, Issa said.
The two-year Canadian government bond CA2YT=RR was off 6 Canadian cents to yield 1.953 percent, while the 10-year bond CA10YT=RR lost 19 Canadian cents to yield 3.502 percent. (Additional reporting by Ka Yan Ng; editing by Peter Galloway)
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