CANADA FX DEBT-C$ rebounds after Bernanke, bonds steady

Fri Aug 26, 2011 4:46pm EDT
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   * C$ rebounds to C$0.9830 to the U.S. dollar, or $1.0173
 * Bonds steady, some risk flows back into market
 * Bernanke says Fed prepared to use tools to spur growth
 * Canada Q2 GDP in focus next week
 (Updates to close)
 By Ka Yan Ng
 TORONTO, Aug 26 (Reuters) - The Canadian dollar ended
firmer against the U.S. currency on Friday as investors
absorbed a speech by Federal Reserve Chairman Ben Bernanke that
that left the door open to further stimulus measures to boost
the struggling U.S. economy.
 There was a mixed reception across markets as Bernanke
offered few details on the U.S. central bank's options and
stopped short of signaling specific actions.
 "The chance of Bernanke coming through with an actual
policy recommendation was quite small," said David Tulk, chief
Canada macro strategist at TD Securities. "Initially, as
expected, markets reacted negatively, only to realize that no
harm had been done either, so they resumed their ascent."
 Equity markets also turned higher, after initially dropping
steeply, on Bernanke's comments that the Fed has "a range of
tools" it could use to boost the economy. He also said it was
critical for the U.S. economy's health to reduce joblessness
and also expressed long-term optimism. [ID:nW1E7JM00N]
 Still, the turn in sentiment was not full-fledged as
safe-haven assets still found some favor. The price of gold
rose and government bonds, including Canada's, were flat to
 Heightened fears that Hurricane Irene would disrupt markets
lightened trading flows by session end. It was somewhat choppy
early, with the currency initially skidding to a one-week low
against the greenback at C$0.9923 to the U.S. dollar, or
$1.0078, shortly after Bernanke's comments.
 "Decent market volume was evident in major FX pairs this
morning but it has since given way to light flows with position
squaring seen ahead of a significant weather event that's
likely to hit the Northeast and in particular (New York City)
this weekend," said Jack Spitz, managing director of foreign
exchange at National Bank Financial.
 The Canadian dollar CAD=D4 rebounded to finish  at
C$0.9830 to the U.S. dollar, or $1.0173, up from C$0.9868 to
the U.S. dollar, or $1.0134, at Thursday's close. It rose 0.6
percent on the week.
 The two-year bond CA2YT=RR was off 1 Canadian cent to
yield 1.003 percent, while the 10-year bond CA10YT=RR edged
up 6 Canadian cents to yield 2.399 percent.
 Next week's key domestic data will be Canadian
second-quarter growth. It is largely expected to have stalled
after extraordinary strength in the first quarter, in part
because of disruptions caused by the Japanese earthquake and
tsunami in March. The strong Canadian dollar and weak U.S.
markets also hit exports. [ID:nN1E77P0F0]
 Only four of 22 economists surveyed by Reuters predicted
lower GDP for the quarter, another seven predicted no growth.
 The data is largely priced in to the market but an ugly
second quarter figure would also lend backing to the market
doves who have priced in an interest rate cut rather than a
hike. Still, most dealers expected the Bank of Canada will
raise rates sometime in 2012. BOCWATCH [CA/POLL]
 The mixed reaction in markets after Bernanke's speech
reflected ongoing concerns about the global economy, especially
after a series of turbulent weeks in the markets.
 "You're really just locking down your positions heading
into the weekend, waiting for the next shoe to drop. We're
still concerned about Europe, concerned about the ongoing
health of the recovery in the U.S. economy," said Tulk.
 "We're tentatively feeling optimistic, but know that
there's a lot of skeletons remaining in a multitude of
 (Reporting by Ka Yan Ng; editing by Rob Wilson)