4 Min Read
* C$ up at 94.88 U.S. cents
* Bernanke signals U.S. rates to remain low
* U.S. home sales drop to record low in January
* Bonds lower, Canada underperforms U.S. (Updates to close, adds details, quotes)
By Claire Sibonney
TORONTO, Feb 24 (Reuters) - The Canadian dollar gained slightly against the U.S. dollar on Wednesday as investor appetite for riskier assets was whetted by remarks from U.S. Federal Reserve Chairman Ben Bernanke, who reaffirmed his vow to keep interest rates low.
Bernanke told Congress that a weak job market and low inflation would likely allow the U.S. central bank to keep interest rates at very low levels for "an extended period". [ID:nN23153536]
But the Canadian currency hit some bumps earlier in the day after dismal data showed sales of newly built U.S. single-family homes hit their lowest level since records started in January 1963, hinting at possible troubles for the fragile U.S. housing market's recovery. [ID:nN24373288]
"It's been kind of a mixed bag today and on balanced we haven't really moved that much from opening levels," said George Davis, chief technical strategist at RBC Capital Markets.
"Bernanke went out of his way to emphasize that there is no change to the Fed's monetary policy despite what people may have been thinking from last week's increase in the discount rate... (and) that basically settled the markets down."
U.S. stocks and oil prices also turned higher as investors welcomed the promise of more cheap money. [.N] [O/R]
"The risk trade is tentatively back on. Equities are up, various other asset classes such as commodities are edging higher and the Canadian dollar normally enjoys an upward tilt when that happens," said Eric Lascelles, chief economics and rates strategist at TD Securities.
The Canadian dollar closed at C$1.0540 to the U.S. dollar, or 94.88 U.S. cents, slightly up from Tuesday's close at C$1.0566 to the U.S. dollar, or 94.64 U.S. cents.
EQUITIES UP, BONDS DOWN
With U.S. equity markets higher, Canadian bond prices were lower across the curve.
The two-year Canadian government bond CA2YT=RR fell 2 Canadian cents to C$100.315 to yield 1.340 percent, while the 10-year bond CA10YT=RR lost 13 Canadian cents to C$102.370 to yield 3.448 percent.
Canadian bonds also lagged their U.S. Treasury counterparts, with the difference between 10-year yields narrowing about 1.6 basis points to 24.1.
"I think part of the story is from a technical perspective the U.S. market had seemed quite cheap and there was quite a great appetite to buy U.S. bonds to resolve that issue," Lascelles said.
"Whereas in Canada the perception was that there was never much of an outlier, and it's still the case that Canadian bonds are roughly fair valued and just haven't fully participated in the recent movement."
Also souring market sentiment, Canada's auction of 30-year real return bonds met with weaker demand than usual as marginal investors shied away from lower-yielding but safer inflation-protected government debt. [ID:nN2499749]
"It seems as though the real return bond market is no longer the one-way ticket to riches that it was, going back a few months ago," Lascelles said. (Reporting by Claire Sibonney; editing by Peter Galloway)