CANADA FX DEBT-C$ surges on BHP's $39 bln Potash bid

Tue Aug 17, 2010 5:08pm EDT
 
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   * C$ rises to 96.81 U.S. cents
 * Potash rejects BHP's $39 bln bid
 * Bonds prices weaken as stocks rise
 (Updates to close, adds details, commentary)
 By Claire Sibonney
 TORONTO, Aug 17 (Reuters) - The Canadian dollar gained more
than a penny against the greenback on Tuesday, boosted by a
blockbuster takeover bid for Potash Corp POT.TOPOT.N and
broader rise in investor appetite for riskier investments.
 BHP Billiton BLT.L BHP.AX launched an unsolicited $38.6
billion bid for Potash Corp of Saskatchewan in a proposal that
would make the Australian mining giant the world's leading
fertilizer supplier. [ID:nNSGE67G0D]
 The acquisition offer -- the largest of the year in any
industry -- was immediately branded by Potash Corp  as "grossly
inadequate," though the Canadian company said it might consider
a more attractive proposition.
 Foreign investors, anticipating that BHP's $130-a-share
offer would eventually rise, poured into the stock. This helped
push the Canadian dollar CAD=D4 as far as C$1.0309 against
its U.S. counterpart, or 97 U.S. cents, making it the day's
outperforming major currency.
 "The U.S. dollar felt a little weak to begin with, and I
think with positive equity sentiment, we would have worked our
way lower anyway, but this story certainly has accentuated the
Canadian dollar," said Shane Enright, executive director of
foreign exchange sales at CIBC World Markets.
 The risk backdrop was improved by factors including solid
demand for European bond auctions, expanding U.S. corporate
earnings and industrial production and a subsequent rally in
equity and commodity markets.
 Analysts said the Canadian dollar could rise to equal value
with the U.S. dollar for the first time since April if the
bidding to acquire the world's largest fertilizer producer
heats up as expected. [ID:nN17146793]
 "In the currency world, they'll probably watch the Potash
stock price fairly closely for cues in terms of how the equity
market is reading the likelihood of a deal, and where that deal
may take place in terms of a final price," added Enright.
 The Canadian dollar closed the North American session at
C$1.0329 to the U.S. dollar, or 96.81 U.S. cents, up from
Monday's finish at C$1.0446 to the U.S. dollar, or 95.73 U.S.
cents.
 Enright said the next important levels to watch would be a
close stronger than the 100-day moving average of C$1.0320.
From there, C$1.0260 is a point of recent price congestion.
 However, currency watchers warned that strength could prove
fleeting, with enthusiasm about capital inflows from mergers
and acquisitions overridden by broader global economic
weakness.
 "It would depend what the global backdrop looks like. If
it's a period like we saw last week with stronger risk aversion
the most it will influence is to hinder the sell-off of the
Canadian dollar," said Matthew Strauss, senior fixed-income and
currency strategist, RBC Capital Markets.
 In a recent report, Strauss noted that since 2000, 26 of
the 33 major deals worth $2.5 billion or more resulted in a
stronger Canadian dollar during the five days following the
announcement.
 Looking to the rest of the week, the market will be focused
on initial jobless claims in the United States, which risk a
third consecutive weekly rise, as well as crucial Canadian
inflation data for July, which may affect the Bank of Canada's
decision on whether to hike rates again in September.
 With riskier assets back in play, Canadian bond prices
fell, tracking a weaker U.S. Treasury market as traders booked
profits after a Monday rally that sent longer-dated yields to
their lowest in nearly a year and a half. [US/]
 Canada's two-year bond CA2YT=RR shed 8 Canadian cents to
yield 1.391 percent, while the 10-year bond CA10YT=RR knocked
off 37 Canadian cents to yield 2.968 percent.
 "It plays into the return of risk appetite, and underlying
obviously a slightly less bearish outlook going forward on the
recovery scenario and on the back of that, bonds under pressure
globally," added Strauss.
  (Reporting by Claire Sibonney; Editing by Jeffrey Hodgson)