CANADA FX DEBT-C$ picks up as China rate hike shock wears off

Wed Oct 20, 2010 8:30am EDT
 
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 * C$ at C$1.0287 or 97.21 U.S. cents
 * Bond prices soften with risk-on move
 By Claire Sibonney
 TORONTO, Oct 20 (Reuters) - The Canadian dollar rose
against the U.S. dollar on Wednesday as appetite for
higher-yielding currencies stabilized after being jolted by a
surprise interest rate increase by China.
 Analysts said the market's reaction to the previous day's
move by China was overblown, and with the U.S. Federal Reserve
set to ease monetary policy further next month any U.S. dollar
rebound would be short-lived.
  Fed officials speaking on Tuesday hinted more monetary
stimulus would soon be on offer, and the market awaited more
Fed speakers on Wednesday to continue to set that tone.
 Domestically, however, the main focus will be the Bank of
Canada's Monetary Policy Report, due later in the morning.
 "We've seen a lot of the risk-off moves yesterday starting
to get unwound, but CAD in that perspective is lagging a lot of
its peers," said David Watt, senior currency strategist at RBC
Capital Markets.
 "That clearly reflects the cautiousness that is in the
Canadian environment right now after the Bank of Canada's tone
yesterday and with the MPR that could provide the nitty gritty
details that weren't necessarily as fulsomely explained by the
Bank of Canada yesterday."
 Canada's dollar tumbled more than 2 cents against the U.S.
currency on Tuesday to touch a near four-week low after the
central bank halted its rate rise campaign and caught markets
off-guard with the dovishness of its language.
 At 8:15 a.m. (1215 GMT), the Canadian dollar stood at
C$1.0287 to the U.S. dollar, or 97.21 U.S. cents, up from
Tuesday's finish at C$1.0319 to the U.S. dollar, or 96.91 U.S.
cents.
 Watt said he expected the day's range for the Canadian
dollar versus the greenback to be C$1.0250 to C$1.0330.
  With riskier assets including global equities higher,
Canadian bond prices mostly softened, tracking weaker U.S.
Treasuries. [US/]
  The two-year bond CA2YT=RR fell half a Canadian cent to
yield 1.341 percent, while the 10-year bond CA10YT=RR lost 9
Canadian cents to yield 2.712 percent.
 (Reporting by Claire Sibonney; Editing by Theodore d'Afflisio)