CANADA FX DEBT-C$ climbs to 2-mth high, helped by commodity rise

Fri Jul 15, 2011 1:07pm EDT
 
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   * C$ touches C$0.9520 to the US$, or $1.0504
 * Strongest level since May 11
 * Gains after European bank "stress test" results
 * Rising oil, commodity prices support
 By Trish Nixon
 TORONTO, July 15 (Reuters) - Canada's dollar strengthened
to a two-month high against the U.S. currency on Friday,
boosted by commodity price gains and the country's relatively
healthy fiscal position compared to the United States and
Europe.
 The price of oil, a major Canadian export, rose as traders
focused on the potential for a weaker greenback, given the
uncertainty surrounding U.S. talks meant to cut deficits and
avert a debt default.  [O/R]
 The results of "stress tests" showing eight European banks
are not strong enough to withstand a prolonged recession and
need to raise 2.5 billion euros in capital also highlighted
troubles there. [ID:nL9E7G9005]
 "(The Canadian dollar) is grinding a little bit stronger
with some of the commodities doing well. Crude oil especially
is up again today. Stocks are pointing in the right direction,"
said Steve Butler, director of foreign exchange trading with
Scotia Capital in Toronto.
 Butler noted the currency has also benefited because Canada
has not experienced the level of of government debt concerns
that U.S. and European policymakers are struggling to control.
 At 12:40 p.m (1640 GMT), the Canadian dollar was at
C$0.9543 to the U.S. dollar, or $1.0479, well up from
Wednesday's North American finish of C$0.9610, or $1.0406.
 It rose as high as C$0.9520 to the U.S. dollar, or $1.0504,
the strongest level since May 11.
 Jack Spitz, managing director of foreign exchange with
National Bank of Canada, said news from Europe and the United
States would set the market's direction in the near term.
 "The market is still trading off the headlines," he said.
"These are critical event risks that are quite meaningful in
terms of directing the market's attention."
 The Canadian dollar made gains despite negative North
American economic data.
 U.S. reports showed consumer confidence plummeted to its
lowest level in more than two years in early July and factory
output stalled in June, further diminishing hopes of a quick
economic rebound in the second half of the year.
[ID:nN1E76E0DF]
 Canadian manufacturing sales fell by 0.8 percent in May
from April, a drop that was significantly worse than expected
as the auto industry failed to bounce back quickly from parts
shortages resulting from the earthquake and tsunami that hit
Japan in March. [ID:nN1E76E0OK]
 Canadian government bond prices were higher across the
curve, as concerns about U.S. and European debt spurred
investors to seek safe-haven assets.
 The two-year bond CA2YT=RR rose 8.5 Canadian cents to
yield 1.429 percent. The 10-year bond CA10YT=RR was up 45
Canadian cents to yield 2.898 percent.
 Canadian bonds outperformed U.S. Treasuries, with the
Canadian 10-year yield 4 basis points below its U.S.
counterpart. The yields on the two bonds were the same on
Thursday.
 (With additional writing by Jeffrey Hodgson; editing by Rob
Wilson)