CANADA FX DEBT-C$ gains in early trade as risk appetite rises
* C$ at C$1.0094 vs US$, or 99.07 U.S. cents
* Equities, euro higher on Europe optimism
* Bond prices lower
By Andrea Hopkins
TORONTO, Oct 19 (Reuters) - The Canadian dollar gained ground against its U.S. counterpart in early trade on Wednesday on optimism that European policymakers are tackling the region's debt crisis, boosting risk-on trade.
European stocks and the euro rose on optimism that finance leaders will take major steps at a summit this weekend to tackle the festering debt crisis, offsetting the market impact of a cut in Spain's sovereign credit rating. [MKTS/GLOB]
"Clearly we were seeing risk appetite back on the table during the majority of the morning session (in Europe)," said Jeremy Stretch, head of foreign exchange strategy at CIBC World Markets in London.
The euro and commodity-linked currencies including the Canadian dollar were stronger in early trade amid the buoyant sentiment.
At 9:03 a.m. (1303 GMT), the Canadian dollar was near C$1.0094 to the U.S. dollar, or 99.07 U.S. cents, well above Tuesday's North American session close at C$1.0144 to the U.S. dollar, or 98.58 U.S. cents.
Stretch said the currency would likely stay within the session ranges already set, strengthening back down to C$1.0060 to the U.S. dollar if there is another bout of risk-on trade or weakening to C$1.0160 if sentiment fades.
"If we do have a plummeting in risk appetite into the close of the U.S. session we could get toward C$1.02 or beyond, but it would have to be a very negative scenario into the close."
German Bund futures FGBLc1 were lower as safe-haven government bonds were sold off on a report in Britain's Guardian newspaper that France and Germany had agreed on a deal to increase the euro zone bailout fund's firepower fivefold.
The reported agreement was later denied by two senior European Union officials. [nB5E7L5021]
"Despite the fact the Guardian story was downplayed relatively quickly, there is still a degree of hope that the politicians do grasp the scale of the problem and can actually come up with something which is reasonably substantive," Stretch said.
"But I think it is a hope rather than an expectation, and it may well still be a case of buying the rumor and selling the fact."
Weaker-than-expected Canadian data dampened the Canadian dollar briefly, while U.S. housing data surged.
Canada's composite leading indicator dropped by 0.1 percent in September from August, the first fall in a year, on lower stock markets and weakness in the manufacturing sector, bucking market expectations for a 0.1 percent gain. [ID:nN1E79I0AM]
U.S. housing starts surged in September at their fastest annual pace in 17 months on a big increase in groundbreaking for multi-family units, while permits for future construction fell. [ID:nN1E79I0BT]
Canadian bond prices fell. The two-year Canadian government bond CA2YT=RR was down 6.5 Canadian cents to yield 1.048 percent, while the 10-year bond CA10YT=RR was down 37 Canadian cents to yield 2.355 percent. (Editing by Jeffrey Hodgson)
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