CANADA FX DEBT-C$ bounces back as oil price tops $102

Wed Nov 16, 2011 1:08pm EST
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   * C$ at C$1.0203 vs US$, or 98.01 U.S. cents
 * Hit earlier session low of C$1.0290, weakest in 1 month
 * Bond prices little changed
 (Updates with details, commentary)
 By Claire Sibonney
 TORONTO, Nov 16 (Reuters) -  The Canadian dollar recovered
from a one-month low against the U.S. currency on Wednesday
after U.S. crude oil topped $102 a barrel and global equities
trimmed earlier losses.
 The resource-driven currency's correlation with oil came
back into play after recently giving way to dominating worries
about the euro zone debt crisis.
 However, market players cautioned that the correlation will
not be meaningful again until the European story moves to the
 "Oil has been a story of its own here with the run it's had
over $100, and the correlation has broken down quite badly
between the Canadian dollar and oil as of late," said Blake
Jespersen, director of foreign exchange sales at BMO Capital
 "You've seen crude rally almost 10 percent and the Canadian
dollar really hasn't moved, in fact it's weakened off."
 U.S. crude prices soared on hopes of a quick solution to a
year-long bottleneck that has weighed heavily on Midwest crude
prices, as well as government reports that showed crude oil and
distillate stocks fell, and better than expected industrial
output data for October. [O/R] [ID:nL5E7MG28R] [ID:nN1E7AF0ES]
 At 12:46 p.m. (1746 GMT), the currency  CAD=D4 was at
C$1.0203 against the U.S. dollar, or 98.01 U.S. cents, up
slightly from Tuesday's North American close at C$1.0208
against the greenback, or 97.96 U.S. cents.
 It was shaping up as a volatile day for the Canadian
dollar, with it swinging from a low of C$1.0290 earlier in the
session to a high of C$1.0194.
 "The risk tone has improved slightly throughout the day but
it hasn't really been enough to move the Canadian dollar
through the C$1.02 level," said Jespersen.
 "We're just seeing the buyers of CAD that we typically see
on these moves have just not been playing much lately. There's
a lot of paralysis in the market relating to European
 He noted there was support for the Canadian currency around
C$1.0350 and resistance back toward parity against the
 The currency was already on better footing after the
European Central Bank bought Italian and Spanish debt to help
stem a renewed selloff of euro zone government bonds.
 Policymakers warned on Wednesday that Europe's debt crisis
posed dangers to the global economy as signs grew that the
contagion was starting to spread to larger European nations.
 The yield spread of 10-year French government bonds over
their German equivalents widened to a euro-era high on fears
the crisis was starting to move to economies that had been
considered more isolated from the problems. [ID:nL5E7MF410]
  "There's still a lot of risk out there. As long as the
issues in Europe are still very much prevalent, which they are,
the bias is for the Canadian dollar to weaken further," said
Mazen Issa, Canada macro strategist at TD Securities.
 "There's really no clarity in terms of what will happen in
Italy and which direction spreads will go."
  Canadian government bond prices were little changed across
the curve. The two-year bond CA2YT=RR was down 1 Canadian
cent to yield 0.907 percent, while the 10-year bond CA10YT=RR
eased 3 Canadian cents to yield 2.129 percent.
 (Reporting by Claire Sibonney; editing by Rob Wilson)