RPT-CANADA FX DEBT-C$ lifted by energy, commodity price gains

Wed Oct 21, 2009 5:17pm EDT
 
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 (Repeats to broaden distribution)
 * C$ finishes at C$1.0460 to the U.S. dollar
 * Rebounds after Tues BoC warning on currency's strength
 (Updates to close, adds quotes)
 TORONTO, Oct 21 (Reuters) - Canada's currency rose against
the U.S. dollar on Wednesday, recovering slightly from a drop
of almost two U.S. cents the day before, helped by gains in
energy and commodity prices.
 The currency shot up after touching its lowest level in
nearly two weeks as the price of oil, a key Canadian export,
jumped nearly 3 percent to its highest close in over a year,
helped by bullish U.S. inventory data. [O/R]
 At the same time, the Reuters-Jefferies CRB index .CRB,
made up of a basket of 19 commodity futures, crossed 280 points
on Wednesday for the first time in a year as a weaker U.S.
dollar helped boost the asset class. [CRB/]
 Those factors help trigger "some stop-losses on dollar/CAD
on the downside and made today's move almost as one-sided as
yesterday's," said Jean-Philippe Blais, vice-president foreign
exchange products at BMO Capital Markets.
 The Canadian unit finished at C$1.0460 to the U.S. dollar,
or 95.60 U.S. cents, up from C$1.0508 to the U.S. dollar, or
95.17 U.S. cents, at Tuesday's close.
 The Canadian dollar suffered its biggest intraday slide in
more than four months on Tuesday after the Bank of Canada
warned about the high-flying currency's impact on the economic
recovery. The bank also laid to rest speculation it might
follow Australia in hiking interest rates quickly.
[ID:nN19231469]
 The move higher on Wednesday reversed overnight weakness as
overseas traders got a chance to react to the Bank of Canada
statement.
 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.
 Analysts said a healthy long-term outlook for commodity
prices and the U.S. dollar's weakening trend against a basket
of currencies meant the Canadian dollar was likely to resume
its push towards parity with the greenback. [ID:nN21486491]
 On Thursday, the Bank of Canada will release its Monetary
Policy Report, which will include revised forecasts. This will
be followed by a news conference with Governor Mark Carney.
 "It's going to be interesting to see how they see interest
rates coming in play in 2010 and if they're going to hold true
to be on hold until the June meeting," Blais said.
 "Some people were expecting (or) hoping for the Bank of
Canada to say they might start hiking rates earlier than they
stated in the past, which was not the case yesterday," he
said.
 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 on Thursday.
 The two-year bond CA2YT=RR, which rose sharply on
Tuesday, fell 2.5 Canadian cents to C$99.465 to yield 1.509
percent, while the 10-year bond CA10YT=RR fell 20 Canadian
cents to C$102.45 to yield 3.447 percent.
 The Canadian market outperformed U.S. Treasury bonds. The
Canadian 10-year Canadian yield was about 5 basis points above
its U.S. counterpart, down from 8 basis points on Tuesday.
 (Reporting by Jennifer Kwan and Jeffrey Hodgson; editing by
Rob Wilson)