CANADA FX DEBT-C$ hovers near 3-1/2 year high amid U.S. fears

Wed Jul 27, 2011 8:50am EDT
 
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 * C$ at C$0.9435 vs US$, or $1.0600
 * Bond prices flat, outperform U.S. Treasuries
 By Claire Sibonney
 TORONTO, July 27 (Reuters) - The Canadian dollar eased from
a more than 3-1/2-year high against a battered greenback on
Wednesday morning as political wrangling over the U.S. debt
limit weighed on Canadian assets by association and proximity
to the United States, its largest trading partner.
 The U.S. dollar fell to a record low against the Swiss
franc CHF= and a four-month low against the yen JPY= as
talks aimed at averting a U.S. debt ratings downgrade or
default remained deadlocked ahead of an Aug. 2 deadline to
raise the U.S. federal debt ceiling or face default. [FRX/]
 "The Canadian dollar, our association with the U.S. is well
known, the reason that we haven't rallied as much as others
have is because of that," said Firas Askari, head of foreign
exchange trading at BMO Capital Markets.
 "I think once this is out of the way, with the (Bank of
Canada's) slightly more hawkish bent since the last statement,
I think Canada should do okay," he said, adding the Canadian
dollar could strengthen to C$0.92 against the U.S. dollar by
the end of the summer.
  At 8:36 a.m. (1236 GMT), the Canadian dollar CAD=D4
stood at C$0.9435 to the U.S. dollar or $1.0600, slightly down
from the North American session close on Tuesday of C$0.9428 to
the U.S. currency, or $1.0607.
 Data on Wednesday morning that showed U.S. durable goods
orders unexpectedly fell in June did not help the Canadian
currency. For more see [ID:nN1E76Q07T].
 On Tuesday, the Canadian currency CAD=D4 climbed as high
as C$0.9407 to the U.S. dollar, or $1.0630, its strongest since
November 2007 when it hit a modern-day high.
 Askari said there was good support for the U.S. dollar
around C$0.9400, while the Canadian dollar was meandering in
the C$0.9410-50 range.
 In recent weeks analysts have said Canada is increasingly
being viewed by global investors as a safe haven, valued for
its political stability, solid central bank and relatively
healthy finances, in addition to its resource base.
 However, Askari said the Canadian dollar would not become a
safe-haven currency of much weight, because of its association
with the United States and its limited liquidity.
 "There's not enough depth to the Canadian dollar market to
act as a long-term safe-haven currency," he said. "I think we
would be part of any bundle of safe-haven currencies if there's
a flight to quality but we would not be the primary
destination."
 Canadian government bond prices were also flat, though they
outperformed U.S. Treasuries as the cost of insuring U.S.
government debt against a default within a year rose to a
record high. [US/]
 The two-year Canadian government bond CA2YT=RR was
unchanged at 1.481 percent, while the 10-year bond CA10YT=RR
was up 2 Canadian cents to yield 2.891 percent.
 (Editing by James Dalgleish)