CANADA FX DEBT-C$ retreats as Italian bond yields soar

Wed Nov 9, 2011 8:16am EST
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 * C$ at C$1.0200 vs US$, or 98.04 U.S. cents,
 * Bond prices rise as Italian yields soar
 By Claire Sibonney
 TORONTO, Nov 9 (Reuters) - The Canadian dollar fell more
than a penny against the U.S. dollar on Wednesday as a
short-lived rally on Italian Prime Minister Silvio Berlusconi's
pledge to resign evaporated.
 Yields on Italian bonds shot to crisis levels above 7
percent and European stocks sank after Berlusconi's promise to
resign failed to raise optimism about the country's ability to
deliver on long-promised economic reforms. [ID:nL6E7M93EM]
 "The immediate catalyst for the moves this morning was the
increase in margins on repo trade on Italian government debt
... even though people had really been anticipating this
coming at some point," said Adam Cole, global head of FX
strategy at RBC Capital Markets in London.
 Markets rallied in reaction to Berlusconi's promised
resignation yesterday, but were still left with many questions
on Wednesday.
 "It still leaves a great deal of uncertainty in terms of
where we go from here, whether that will ultimately force early
elections which would be very market negative or whether we end
up with some kind of technocrat government which would probably
be market positive or whether we just end up with some sort of
cobbled together coalition," said Cole.
 Uncertainty was also overhanging Greece, where political
leaders were scrambling unsuccessfully to find a new prime
minister to lead Greece back from the brink of bankruptcy,
after a plan to name a former central banker ran into trouble.
 At 8:09 a.m. (1309 GMT), the Canadian dollar CAD=D3
stood at C$1.0200 versus the greenback, or 98.04 U.S. cents,
down sharply from Tuesday's North American session finish at
C$1.0082 against the U.S. dollar, or 99.19 U.S. cents
 Data showing that Chinese industrial output grew at its
weakest annual pace in a year in October was also discouraging,
pushing commodity prices lower. [O/R] [MET/L]
 But Cole noted that U.S. dollar strength was supporting the
Canadian currency on the crosses.
 He put near term support for the Canadian dollar around
C$1.0220, followed by C$1.0265.
Canadian government bond prices rose alongside U.S.
Treasuries as investors sough safe-haven assets.
 The two-year bond CA2YT=RR was up 16 Canadian cents to
yield 0.913 percent, while the 10-year bond CA10YT=RR climbed
57 Canadian cents to yield 2.116 percent.
 (Reporting by Claire Sibonney, editing by W Simon)