CANADA FX DEBT-C$ drops for 3rd straight day but pares loss

Thu Jan 20, 2011 5:19pm EST
 
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 * C$ recovers to $1.0029 from 2-week low of 99.69 US cents
 * Bonds ease across the curve after data
 * Next up: Canadian retail sales for November
 (Updates to close)
 By Ka Yan Ng
 TORONTO, Jan 20 (Reuters) - The Canadian dollar fell for a
third straight session against the U.S. currency  on Thursday,
and was at its weakest levels in more than two weeks after the
release of stronger-than-expected Chinese and U.S. data.
 Soft equity markets and a slump in the price of crude oil
also put pressure on the risk-based Canadian dollar, but it
still managed to pare losses in the second half of the North
American session, partly due to technical plays.
 "It has come back to some degree," said Jack Spitz,
managing director of foreign exchange at National Bank
Financial.
 The Canadian dollar hit an intraday low of C$1.0031, or
99.69 U.S. cents, its weakest level since Jan. 4. That was just
a few ticks from its lowest point of 2011 at C$1.0035 to the
U.S. dollar, or 99.65 U.S. cents.
 Spitz said the U.S. dollar pared some gains against the
Canadian currency because it failed to break through a key
technical resistance level at C$1.0040.
 "It wasn't breached today, so as a result there were
technical (U.S. dollar) sellers that created momentum on some
stops below C$0.9980."
 He said a much deeper U.S. dollar correction would be
likely should the Canada currency close above C$0.9950 to the
U.S. dollar.
 The Canadian dollar CAD=D4 closed at C$0.9971 to the U.S.
dollar, or $1.0029, down from Wednesday's North American finish
of C$0.9955 to the U.S. dollar, or $1.0045.
 Chinese economic growth soared past forecasts to rise by
9.8 percent in the fourth quarter and inflation slowed less
than expected, which sparked market fears of monetary policy
tightening in China, which might slow demand for Canadian
resources.
 Also, a round of stronger-than-expected U.S. data pushed up
the U.S. dollar at the expense of the Canadian currency. U.S.
jobless claims showed the biggest drop in nearly a year, and
U.S. home resales jumped more than expected in December. The
data rekindled the view of an overall strengthening of the U.S.
economy. [ID:nN20105802]
 "We've got a general risk-aversion feel that's going
through markets," said David Watt, senior currency strategist
at RBC Capital Markets.
 "The Canadian dollar was already flirting just below parity
before the U.S. data came out. Even though we got some fairly
good data coming out of Canada it seems to be that the data out
of the U.S. was a little bit more of a dominant factor."
 The currency's one-for-one footing with the U.S. dollar
started to falter on Tuesday when dovish language by the Bank
of Canada in its interest-rate statement raised some doubts
about the timing of the next rate hike. [ID:nN18138776]
 BONDS FALL
 Two Canadian economic indicators released on Thursday
brightened the fourth-quarter economic view, and kept pressure
on Canadian government bond prices.
 Statistics Canada said wholesale trade rose 1.2 percent in
November, advancing for the fourth month in a row, while the
composite leading indicator rose 0.5 percent in December. Both
indicators beat expectations. [ID:nN2083816]
 But the data did little to change near-term expectations on
interest rate hikes.
 Market pricing for the Bank of Canada's interest rate
decision in March showed a 94.05 percent probability of no
change in rates, as measured by a Reuters calculation of yields
on overnight index swaps. BOCWATCH
 Investors next turn to Canadian retail sales for November,
due on Friday at 8:30 a.m. (1300 GMT). The data is expected to
show a 0.5 percent increase after October's 0.8 percent
advance. ECONCA It is the only notable piece of North
American data expected on Friday so it could have a big
influence on market sentiment.
 The two-year bond CA2YT=RR was down 4 Canadian cents to
yield 1.712 percent, while the 10-year bond CA10YT=RR lost 56
Canadian cents to yield 3.307 percent. Canadian government
bonds outperformed their U.S. counterparts across the curve.
 (Editing by Peter Galloway)