CANADA FX DEBT-C$ bolstered by Bernanke, Chinese data

Wed Jul 13, 2011 5:16pm EDT
 
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 * C$ closes at C$0.9597, or $1.0420
 * Bond prices mostly lower across curve
 * 2-yr bond auction met with firm demand
 By Solarina Ho
 TORONTO, July 13 (Reuters) - The Canadian dollar powered
higher against its U.S. counterpart on Wednesday as dovish
comments from U.S. Federal Reserve Chairman Ben Bernanke and
bullish Chinese economic data calmed markets made anxious by
Europe's sovereign debt crisis.
 Bernanke said the Fed is ready to ease monetary policy
further if the economy weakens and inflation moves lower,
suggesting policymakers are actively mulling further stimulus.
The comments sent the U.S. dollar sharply lower. <MKTS/GLOB>
[USD/]
 Data on Wednesday showed China's economy grew faster than
expected in the second quarter, easing fears of a hard landing
and strengthening Beijing's resolve to fight persistently high
inflation. [ID:nL3E7ID0AS]
 "The combination of stronger-than-expected growth out of
China and a very dovish Bernanke, who has opened the door ever
so slightly to the potential of QE3 (further stimulus), and
some easing of risk coming out of Europe -- all that's created
a good environment for CAD to rally," said Camilla Sutton,
chief currency strategist at Scotia Capital.
 "CAD held in very, very well during the recent spike up in
risk (aversion) that saw a lot of weakness in the euro. So in
many ways, it also makes sense that even though we've gained
today, we've underperformed," she said.
 The currency CAD=D4 finished at C$0.9597 to the U.S.
dollar, or $1.0420, up from Tuesday's North American finish of
C$0.9662, or $1.0350. The currency rose as high as C$0.9578, or
$1.0441, during the session.
 The Canadian dollar strengthened further after the official
Bank of Canada close, to C$0.9572, or $1.0447, on news that
ratings agency has Moody's put its U.S. ratings on review for
possible downgrade. [ID:nWNA3574]
 Commodity prices -- oil in particular -- pressed higher,
and also helped to drive Canadian dollar gains. Canada relies
heavily on resource exports and its currency is affected by
swings in commodity prices. [O/R]
 The Thomson Reuters-Jefferies Index .CRB, a global
commodities benchmark, was up 1.43 percent on Wednesday.
 A Reuters survey published on Wednesday found forecasters
expect the Bank of Canada to raise interest rates sometime in
the fourth quarter as a sturdy, if unspectacular, domestic
recovery offsets global headwinds. <CA/POLL>
 A tightening of monetary policy by the Bank of Canada would
likely help attract foreign capital, and drive the Canadian
dollar higher.
 "The only headwinds that the Canadian economy is facing are
nondomestic in nature," said Firas Askari, head of foreign
exchange trading at BMO Capital Markets. "I think if we see
some sort of stabilization on the global scale you are going to
see monetary policy shift here and probably shift relatively
quickly.".
 Looking ahead, U.S. June retail sales data on Thursday
morning could be the next driver for the currency.
 "Jobs numbers in the United States have been far from
encouraging, so we're looking now at retail sales, as maybe
this is the point where we have to start taking a haircut to
our second half outlook to the United States," said David Watt,
senior fixed income and currency strategist at RBC Capital
Markets. "That will have an impact on the Canadian dollar to an
extent."
 BOND AUCTION "WELL RECEIVED"
 Canada's sale of two-year government bonds on Wednesday met
with firm demand. The C$3.5 billion auction produced an average
yield of 1.576 percent, up from 1.572 percent at the last
two-year bond auction in June. [ID:nN1E76C15M]
 Canadian government bond prices were mostly lower across
the curve as investors moved to risker assets.
 The two-year bond CA2YT=RR was flat, yielding 1.448
percent, while the 10-year bond CA10YT=RR shed 28 Canadian
cents to yield 2.927 percent.
 (Additional reporting by Trish Nixon; editing by Peter
Galloway)