CANADA FX DEBT-C$ recovers from 7-week low to close firmer

Tue May 17, 2011 5:26pm EDT
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   * C$ edges up to C$0.9726 to the U.S. dollar, or $1.0282
 * Late session, broadbased US$ decline helps spur reversal
 * Bond prices rise on U.S. data, Europe worries
 By John McCrank
 TORONTO, May 17 (Reuters) - Canada's dollar closed higher
against a broadly weaker U.S. dollar on Tuesday in light,
choppy trading as uncertain investors questioned the viability
of the global economic rebound.
 Early in the session the currency touched C$0.9794 -- its
weakest point against the greenback since March 28 -- after
data showed that U.S. housing starts and permits slumped in
April, as did factory output. [ID:nLDE74G1QN]
 The data pointed to a slow start to the second quarter for
the world's biggest economy, which absorbs around three
quarters of all Canadian exports.
 But as the session wore on, the U.S. dollar weakened in
light volume against all major currencies except the Japanese
 The weaker greenback on Tuesday may have been due to some
profit-taking among investors, said Shaun Osborne, chief
currency strategist at TD Securities in Toronto.
 Concerns over the fiscal situation in Europe and waning
strength in some of the larger Asian economies had given the
U.S. dollar a boost as of late, and taken the steam out of
commodity-based currencies like the Canadian, Australian, and
New Zealand dollars.
 Some analysts said that data out of Canada showing a
rebound in foreign purchases of Canadian securities in March
helped support the currency. The report was seen as a sign of
confidence in the soundness of the country's economic
fundamentals. [ID:nN17130640]
 The Canadian dollar CAD=D4 ended the North American
session at C$0.9726 to the U.S. dollar, or $1.0282, up from
C$0.9742 to the U.S. dollar, or $1.0265 at Monday's close.
 Osborne said he expects the Canadian dollar to trend lower
against the greenback over the near- to medium-term, as
investors are becoming more risk averse and the U.S. dollar is
generally seen as the safe-haven currency of choice.
 "I think we're sitting on the cusp of a move towards
parity," he said.
 An end to the U.S. central bank's quantitative easing
policy would also likely breath some life back into the U.S.
dollar, said Mark Chandler, head of Canadian fixed income and
currency strategy at RBC Capital Markets in Toronto.
 "By most measures, the U.S. dollar is still quite
undervalued," he said.
 Canadian bond prices rose on the back of the weak U.S.
data, which gave a bid to safe-haven government debt, Chandler
 He added that there was a firmer tone for bond markets in
general even before the data on continued worries on the
sovereign debt front out of Europe.
 Canada's two-year bond CA2YT=RR  rose 5 Canadian cents to
yield 1.642 percent, while the 10-year bond CA10YT=RR climbed
17 Canadian cents to yield 3.165 percent.
 (Editing by Jeffrey Hodgson)