August 19, 2010 / 7:44 PM / in 7 years

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

 * 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)                                                       

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