CANADA FX DEBT-C$ falls as weak data overshadows Potash bid

Thu Aug 19, 2010 3:41pm EDT
 
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 * C$ slides to 96.21 U.S cents
 * Soft U.S., Canadian data weigh
 * Investors still eye higher Potash bid
 * Government bond prices firm
 By Claire Sibonney
 TORONTO, Aug 19 (Reuters) - The Canadian dollar reversed
course against the greenback on Thursday, falling more than a
penny after weaker than expected North American economic data
trumped the positive impact that a takeover bid for Canada's
Potash Corp has had on the currency.
 Riskier assets such as stocks, commodities and
commodity-related currencies were hit as the frail U.S.
economic rebound was dealt further setbacks after reports
showed new 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 softness in the 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.
 "M&A inflows, even excessively large ones, don't
necessarily have enough of a force to offset global economic
realities."
 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 as
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 spike in Potash's stock price
suggests a higher offer.
 The financing of the deal, St-Arnaud added, 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.
 At 3:07 p.m. (1907 GMT), the Canadian dollar was at
C$1.0394 to the U.S. dollar or 96.21 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 fell as low as C$1.0416 to the
U.S. dollar, or 96.01 cents.
 RBC's Watt said if the slide continues, he would be
watching a critical resistance range between C$1.0488 to
C$1.0503.
 On Friday, the market will be focused on Canadian inflation
data for July, figures that will help the Bank of Canada decide
monetary policy 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 was up 4 Canadian cents
to yield 1.363 percent, while the 10-year bond CA10YT=RR
gained 18 Canadian cents to yield 2.917 percent.
 (Reporting by Claire Sibonney; editing by Peter Galloway)