CANADA FX DEBT-C$ rebounds to end higher, bonds fall

Thu Mar 17, 2011 5:08pm EDT
 
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   * C$ finishes at C$0.9863 per US$, or $1.0139
 * Bonds give ground on profit-taking, more stable stocks
 * G7 ministers to meet, market on intervention watch
 * Canada wholesale trade up 1.5 pct, forecast was 0.6 pct
 * Next up: Canada inflation seen staying tame in February
 (Updates to close)
 By Ka Yan Ng
 TORONTO, March 17 (Reuters) - The Canadian dollar CAD=D4
ended higher against the U.S. currency on Thursday, ending a
three-day slide, gaining support from higher oil prices and
economic data that suggested Canada's economy got off to a
strong start in 2011.
 U.S. oil, a key driver for the commodity-linked Canadian
dollar, rose by more than $3 to above $101 a barrel as unrest
in Saudi Arabia, Bahrain and Libya heightened concerns about
supply disruptions. [O/R]
 "I would almost have expected somewhat better from the
Canadian dollar, given all the factors that seem to be in its
favor today," said David Watt, senior fixed income and currency
strategist at RBC Capital Markets.
 "We are doing better on the day but we are still somewhat
shy of most of the European currencies and the Japanese yen."
 The Canadian dollar finished at C$0.9863 to the U.S.
dollar, or $1.0139, up from C$0.9918 to the U.S. dollar, or
$1.0083, at Wednesday's close.
 Impeding the currency's gains was continuing anxiety about
developments in Japan's nuclear crisis. Engineers worked
through the night to restore a power cable to a crippled
nuclear plant in the hope of restarting pumps desperately
needed to pour cold water on overheating fuel rods and avert a
catastrophe. [ID:nL3E7EH18S]
 Market focus was squarely on the Japanese yen, which
retreated from its record high against the U.S. dollar. Market
watchers were also on guard for the outcome of a Group of Seven
conference call, where finance ministers and central bankers
will discuss possible steps to calm volatile financial markets
roiled by fears about the crisis in Japan. [FRX/]
[ID:nN17296393]
 "I don't think we're going to see a clear statement that
they're going to intervene," said Watt. "I think we'll see a
strong statement that central banks have a very strong vested
interest in orderly markets, which we did not get late last
night in dollar/yen or any of the other yen crosses."
 Supportive factors for the Canadian dollar on Thursday
included firmer stock markets -- Toronto and New York were both
up more than 1 percent -- and positive Canadian economic data.
 Canada's January wholesale trade grew at more than twice
the pace expected, while foreign investors remained
enthusiastic buyers of Canadian bonds in the first month of the
year, with foreign net investment in Canadian securities the
strongest since last September. [ID:nN17178665]
 BONDS FALL
 Despite the market's concerns over Japan, some analysts
suggested the positive domestic data could nudge the Bank of
Canada closer to raising interest rates in the first half of
this year from the current 1.0 percent.
 "Both releases today are a gentle reminder that the macro
conditions in Canada are in a healthy condition, said Mazen
Issa macro strategist at TD Securities.
 "Our long-standing view has been an interest rate hike in
July. Tomorrow's CPI report should help strengthen this case.
 Unlike the situation in many other countries, inflation in
Canada is expected to remain tame and of limited concern to the
central bank. Economists see the overall inflation rate
remaining above the bank's 2 percent target, but nearly a
percentage point of that is due to higher sales taxes. The data
is due at 7 a.m. on Friday. [ID:nN11170328]
 Canadian short-dated bonds gave up some of this week's
gains as investors booked profits and world stocks stabilized.
 The two-year government bond CA2YT=RR fell 15 Canadian
cents to yield 1.605 percent, while the 10-year bond
CA10YT=RR shed 28 Canadian cents to yield 3.188 percent.
 (Reporting by Ka Yan Ng; editing by Rob Wilson)