November 17, 2010 / 1:11 PM / 7 years ago

CANADA FX DEBT-C$ recovers to trade flat, China rate talk weighs

* C$ unchanged at 97.83 U.S. cents

* Canadian bond prices flat to lower as equities perk up

TORONTO, Nov 17 (Reuters) - Canada’s dollar was flat against the U.S. currency, recovering from a fresh near-three week low but weighed by soft commodity prices on Wednesday morning.

The Canadian dollar fell to its weakest since Oct. 28 at C$1.0260 to the U.S. currency, or 97.47 U.S. cents, as oil dropped on renewed worries China may increase interest rates to stave off inflation. Other key commodities, such as copper, also retreated. [O/R][MET/L]

At 8 a.m. (1500 GMT), the Canadian dollar CAD=D4 was at C$1.0222 to the U.S. dollar, or 97.83 U.S. cents, exactly the same as Tuesday’s close.

“I think it’s going to underperform because of depressed commodity prices, which is all directly (related) to China,” said Michael O‘Neill, managing director at Knightsbridge Foreign Exchange. He put the Canadian dollar’s daily range between C$1.0170-C$1.0260.

“Even though equity markets may recover a bit, I think the China tightening rumors will keep commodities soft and that will keep Canada on the defensive.”

Canada’s dollar shed more than a cent against the greenback on Tuesday, continuing a slide that has been largely at the hands of external influences.

The Canadian dollar hit parity with the U.S. dollar earlier this month and made several attempts to hold there, but has repeatedly bounced from the one-for-one level on mounting speculation of a Chinese rate hike.

Chinese Premier Wen Jiabao said his government was preparing steps to tame price rises, feeding into market expectations that China will intensify tightening policies. There is talk that it may do so as soon as Friday. [ID:nTOE6AG00J]

The sovereign debt worries in Europe were less of an immediate drag on Wednesday. Euro zone finance ministers agreed on Tuesday to lay the groundwork for bailing out Ireland’s banking sector with the IMF, but Dublin has yet to decide whether to request the aid.

While Asian stock markets closed lower, European shares reversed earlier losses and Wall Street pointed to a higher open. The slightly firmer sentiment towards riskier assets put some pressure on Canadian government bonds prices.

The two-year bond CA2YT=RR was unchanged to yield 1.573 percent, while the 10-year bond CA10YT=RR slipped 13 Canadian cents to yield 3.088 percent.

Reporting by Ka Yan Ng

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