CANADA FX DEBT-C$ rises as risk appetite returns

Wed Oct 21, 2009 11:06am EDT
 
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   * C$ climbs to C$1.0425 to the U.S. dollar
 * Rebounds after Tues BoC warning on currency's strength
 * Bond prices lower across the curve
 (Recasts, adds quotes)
 TORONTO, Oct 21 (Reuters) - Canada's currency rose against
the U.S. dollar on Wednesday morning as investor appetite for
risk returned, reversing a move lower overnight on lingering
effects of the Bank of Canada warning that a strong domestic
currency was undermining economic recovery.
 The move higher midmorning came as North American equity
markets found firmer footing on signs of strength in corporate
profits, pushing down the greenback. [FRX/]
 "We saw some broad-based U.S. dollar weakness since the
market opened this morning. The broad-based weakness is a
result of the risk appetite returning. Consequently, CAD and
the other commodity-based currencies are doing much better,"
said Matthew Strauss, senior currency strategist at RBC Capital
Markets.
 At 10:45 a.m. (1445 GMT), the Canadian unit was at C$1.0425
to the U.S. dollar, or 95.92 U.S. cents, up from C$1.0508 to
the U.S. dollar, or 95.17 U.S. cents, at Tuesday's close.
 Earlier, the Canadian dollar had dropped to C$1.0584 to the
U.S dollar, or 94.48 U.S. cents, its lowest level since Oct. 8.
The slide followed a tumble of near 2 U.S. cents on Tuesday
when the Bank of Canada warned about the high-flying currency's
impact on Canada's economic recovery [ID:nN19231469] and laid
to rest speculation it might follow Australia in hiking
interest rates quickly.
 Earlier weakness in the price of oil, a key Canadian
export, also weighed on the currency on Wednesday. But by
midmorning oil prices were higher. [O/R]
 On Thursday, the Bank of Canada will release its Monetary
Policy Report, which will be followed by a news conference with
Governor Mark Carney.
 BONDS LOWER
 Domestic bond prices, with no Canadian data to consider,
were stuck lower across the curve alongside a weaker U.S.
Treasury market. [US/]
 There was also a modest selloff due in part to the
unwinding of Tuesday's "extreme bullishness," said Eric
Lascelles, chief economics and rates strategist at TD
Securities.
 "Clearly, the Bank of Canada was the dominant theme
yesterday. My sense is that markets are looking a little bit
further ahead," he said, noting the market will be eyeing
domestic retail sales data and the central bank's monetary
policy report.
 The two-year Canada bond was down 8 Canadian cents at
C$99.42 to yield 1.533 percent, while the 30-year bond fell 75
Canadian cents to C$117.20 to yield 3.968 percent.
 (Reporting by Jennifer Kwan and Frank Pingue; editing by Rob
Wilson)