CANADA FX DEBT-C$ benefits from equities, shrugs off CPI

Fri Jul 23, 2010 8:55am EDT
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 *C$ rises to 96.30 U.S. cents
 *Bond yields creep higher
 *Canada inflation rate in June slows to 1.0 pct
 By Claire Sibonney
 TORONTO, July 23 (Reuters) - The Canadian dollar inched up
against its U.S. counterpart on Friday, as positive North
American equity futures offset the negative impact of soft
domestic inflation data, while market participants eagerly
awaited the results of European bank stress tests.
 Moderating energy prices helped to slow Canada's annual
inflation rate in June from May, suggesting that the Bank of
Canada has breathing room to take a gradual approach to future
interest rate hikes. [ID:nN23500487]
 Initially after the data, the Canadian dollar CAD=D4 fell
to a session low of C$1.0440 versus greenback, or 95.79 U.S.
cents, but quickly rebounded as a new batch of solid U.S.
corporate results pointed to a continuing rally in equity
 "The Canadian dollar is probably more sensitive, I think,
to the activity numbers rather than the inflation numbers,"
said Adam Cole, global head of FX strategy at RBC Capital
 The Canadian dollar has moved sharply in recent sessions on
employment and growth data.
 "Canada did dip initially but it's come back a bit and I
think that's just basically on the fact that number one, it was
probably a little bit preconditioned that we were going to see
slightly weaker CPI," said Steve Butler, director of foreign
exchange trading at Scotia Capital.
 "Number two, we've seen the stock futures point in the
right direction on the positive side and that's generally been
good for the Canadian dollar."
 At 8:35 a.m. (1235 GMT), the Canadian currency CAD=D4 was
at C$1.0384 to the U.S. dollar, or 96.30 U.S. cents, up from
Thursday's finish at C$1.0393 to the U.S. dollar, or 96.22 U.S.
 Butler noted that a key technical level to watch was the
100-day moving average which is 1.03.
 "We tested it four times last week, couldn't ever get a
close below it, so I think if we can go down to that C$1.0280
to C$1.03 area that will be really important for the downside,"
he said
 "Anywhere back up toward  that C$1.0560 to C$1.0580 area is
going to be certainly the topside and before we get there I
think we should probably find a little bit of resistance up
toward C$1.05."
 The Canadian dollar was dragging prior to the inflation
data, as positive economic data in Europe boosted buying of
euros and sterling against the currency.
 News that Britain's economy grew almost twice as fast as
expected in the second quarter and German business sentiment
leaped by a record margin in July cheered investors ahead of
the European bank stress test results due at noon EDT [1600
 A slip in oil prices also weighed on the commodity-linked
currency. [O/R]
 Canadian bond prices extended their declined after the soft
inflation report, tracking U.S. Treasuries lower after the
solid U.S. corporate earning results whetted investor appetite
for riskier assets. [US/]
  The two-year bond CA2YT=RR lost 5 Canadian cents to
yield 1.573 percent, while the 10-year bond CA10YT=RR shed 30
Canadian cents to yield 3.249 percent.
  (Additional reporting by John McCrank)
 (Editing by Theodore d'Afflisio)