CANADA FX DEBT-C$ slips as bad economic news trumps Potash bid

Thu Aug 19, 2010 4:40pm EDT
 
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   * C$ slides to 96.16 U.S cents
 * Soft U.S., Canadian data weigh
 * Investors still eye higher Potash Corp bid
 * Government bond prices firm
 (Updates to close)
 By Claire Sibonney
 TORONTO, Aug 19 (Reuters) - The Canadian dollar closed more
than a penny weaker against the greenback on Thursday, after
unexpectedly soft North American economic data overshadowed the
positive impact of this week's takeover bid for Canada's Potash
Corp.
 Riskier assets such as stocks, commodities and
commodity-related currencies all fell on news that U.S. jobless
claims scaled a nine-month high last week and Mid-Atlantic
factory activity contracted in August for the first time in
more than a year. [ID:nN19350083]
 In Canada, worse than foreseen wholesale trade and leading
indicator figures added to worries that the economy is slowing,
pressured by a cooling housing sector. [ID:nN19260847]
 "The Canadian dollar is pretty much flat on the week
even though we've had what could potentially be the largest M&A
inflow to Canada in history announced," said David Watt, senior
currency strategist at RBC Capital Markets.
 "Our largest trading partner continues to look like it's
going through at least a moderate soft patch if not heading
deeper back into recession and ... the Canadian economy, while
we were rocking and rolling in Q3 2009 to Q2 of this year, we
seem to be stumbling backwards."
 Anglo-Australian BHP Billiton BHP.AX, the world's biggest
miner, this week embarked on a $39 billion hostile takeover bid
for Potash Corp POT.TO, the world's biggest fertilizer
producer. [ID:nSGE67I049]
 Investors anticipate bids higher than BHP's $130-a-share
offer as Potash stock has since surged above that price and BHP
has arranged a syndicated loan of $45 billion.
 Charles St-Arnaud, Canadian economist and currency
strategist at Nomura International in New York, said BHP's bid
has already been priced into the currency after the Canadian
dollar's two-day rally.
 "If the deal is revised, there could probably be more
upside," he said, adding that the strong outlook for
commodities such as wheat and corn and rebounding demand for
the crop nutrient suggests a higher offer.
 The financing of the deal, even if paid out in U.S.
dollars, would still support the Canadian dollar as a sizable
amount could be expected to be converted into the currency by
Canadian shareholders, St-Arnaud added.
 Other multi-billion-dollar deals, specifically in the
energy sector, are anticipated by many in the market.
 However, Watt cautioned, "M&A inflows, even excessively
large ones, don't necessarily have enough of a force to offset
global economic realities."
 The Canadian dollar closed the North American session at
C$1.0399 to the U.S. dollar or 96.16 U.S. cents, down sharply
from C$1.0287 to the U.S. dollar, or 97.21 U.S. cents, at
Wednesday's close. Earlier, it touched C$1.0416 to the U.S.
dollar, or 96.01 cents.
 On Friday, the market will be focused on Canadian inflation
data for July, figures that will help the Bank of Canada
determine monetary policy at its next rate-setting announcement
September 8 and for the remainder of the year. [ID:nN13198326]
 The market is roughly split on whether the central bank
will raise its key rate in September or pass after two
increases since the beginning of June. BOCWATCH
 Canada's government bond prices were firmer after the weak
economic data as investors fled riskier assets, pouring back
into safe-haven government debt. [US/]
 Canada's two-year bond CA2YT=RR rose 4 Canadian cents to
yield 1.363 percent, while the 10-year bond CA10YT=RR gained
21 Canadian cents to yield 2.914 percent.
 (Reporting by Claire Sibonney; Editing by Jeffrey Hodgson)