CANADA FX DEBT-C$ rises as risk appetite returns
* 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.
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)
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