CANADA FX DEBT-C$ falls as Ireland, Korea dent risk appetite

Tue Nov 23, 2010 4:39pm EST
 
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 * C$ hits 3-wk low, recovers to end at 97.74 U.S. cents
 * Bonds pressured by new issues
 * Canada inflation hits 2-year high, prompts rate talk
 * Markets jolted by Korean tension, euro zone concerns
 By Ka Yan Ng
 TORONTO, Nov 23 (Reuters) - Canada's dollar hit a
three-week low against the U.S. currency on Tuesday as mounting
worries over tensions in Korea and euro zone debt gave a
safe-haven boost to the greenback, but it cut its losses by the
end of the day, supported by domestic inflation data.
 Market players were watching developments after North
Korean artillery hit a South Korean island in one of the
heaviest attacks on its neighbor since the Korean War ended in
1953.
 The incident added to intensifying pressure in global
financial markets resulting from concern that a rescue package
for Ireland may not stop problems from spreading to other
indebted euro zone countries. [MKTS/GLOB]
 The currency fell as low as C$1.0265 to the U.S. dollar, or
97.42 U.S. cents. By session's end, however, the Canadian
dollar CAD=D4 recovered to close at C$1.0231 to the U.S.
dollar, or 97.74 U.S. cents, down from Monday's close at
C$1.0175 to the U.S. dollar, or 98.28 U.S. cents.
 "It's following the general U.S. dollar move," said John
Curran, senior vice president at CanadianForex.
 "But the Canadian dollar weakness is being slowed by the
(consumer price index) numbers. The general overall risk
aversion (is due to) concern about the European situation, and
the hostilities in Korea are not helping."
 The currency rose to a session high of C$1.0162 to the U.S.
dollar, or 98.41 U.S. cents, early in the day after data showed
the domestic inflation rate in October jumped to a two-year
high, suggesting the Bank of Canada could speed up interest
rate hikes.
 Canada's annual inflation rate in October rose to a
two-year high of 2.4 percent from 1.9 percent in September on
higher prices for gasoline and energy, Statistics Canada said.
The annual core inflation rate rose to 1.8 percent from 1.5
percent in September.  [ID:nN23105406] ECONCA
 Most analysts don't expect the Bank of Canada to resume
rate hikes until the new year. While the inflation rate came in
above the midpoint of the central bank's inflation target,
analysts said a clear trend of rising prices would have to
emerge before the Bank of Canada acted.
 "It's certainly higher than the Bank of Canada's average
outlook for what's going to happen in Q4 for the price
increases so it's constructive as far as that goes. But of
course one data point does not make a trend," said Sacha
Tihanyi, currency strategist at Scotia Capital.
 Other data showed Canadian retail sales increased by 0.6
percent in September from August, in part due to higher sales
at motor vehicle and parts dealers. Market analysts had
expected a 0.7 percent advance. [ID:nN23127322]
 BUSY SLATE OF NEW BOND ISSUANCE
 Canadian government bond prices were mildly lower across
the curve on Tuesday, unable to fully benefit from the flight
to safety ignited by news of the Korea tensions.  
 "In Canada, we're just down marginally. The focus in our
session was new issuance. That might be depressing our
government bonds a bit," said Sheldon Dong, fixed income
analyst, at TD Waterhouse Private Investment.
 At least C$875 million in new issues were offered on
Tuesday, with long-dated deals from 407 International and
AltaGas. [ISU-CAN]
 The two-year government of Canada bond CA2YT=RR was down
8 Canadian cents to yield 1.656 percent, while the 10-year bond
CA10YT=RR  fell 17 Canadian cents to yield 3.107 percent.
 (Reporting by Ka Yan Ng; editing by Peter Galloway)