CANADA FX DEBT-C$ surges on U.S. data, Europe fears

Wed Nov 24, 2010 4:52pm EST
 
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 * C$ closes at 98.90 U.S. cents
 * Hits 1-week high vs US$, 3-month high vs euro
 * Bonds slip across the curve
 (Updates to close, adds details, comments)
 By Claire Sibonney
 TORONTO, Nov 24 (Reuters) - The Canadian dollar zoomed to a
one-week high against the greenback on Wednesday and a
three-month high versus the euro, lifted by some upbeat U.S.
economic data, fears of a spreading euro zone crisis, and its
own healthy fundamentals.
 The market was generally in a risk-on mood with a rally in
equities and commodities supported by new U.S. figures that
showed claims for jobless benefits dropped to the lowest level
in more than two years last week, suggesting the economy is
nearing a self-sustaining recovery. [ID:nN24211131]
 Due to Canada's close ties to the United States, its dollar
benefited from the brighter employment picture, as well as
positive U.S. consumer spending and sentiment reports.
 "We've had significant outperformance today," said Camilla
Sutton, chief currency strategist at Scotia Capital, noting the
currency was top of the majors.
 The Canadian dollar also benefited from a weak euro, which
struggled as Ireland's four-year plan to make 15 billion euros
in savings to bring down its record deficit left investors
little impressed. [ID:nLDE6AM25A]
 The currency CAD=D4 closed the North American session at
C$1.0111 to the U.S. dollar, or 98.90 U.S. cents, up from
C$1.0231 to the U.S. dollar, or 97.74 U.S. cents, at Tuesday's
close.
 Earlier in the day, the currency hit a high of C$1.0092 to
the U.S. dollar, or 99.09 U.S. cents, its best level since Nov.
16. Sutton said there is near-term support for the U.S. dollar
in that area and at C$1.0080. She said there is resistance at
the nine-day moving average of C$1.0178 and at the day's
opening level of C$1.0247.
 Against the euro, the Canadian dollar reached C$1.3456, or
74.31 euro cents, its strongest level since Sept. 21.
 As well as the uncertainty over European debt levels, a
Bloomberg report that Russia's central bank has begun adding
small amounts of Canadian dollars to its international reserves
-- a move that has been expected since last year -- was also a
driver. [ID:nN24236816]
 The Canadian dollar's strong performance gives corporate
Canada an opportunity to buy U.S. dollars as it retests parity,
and that could stem some gains, said Firas Askari, head of
foreign exchange trading at BMO Capital Markets. But he said he
still sees the currency doing well.
 Analysts say Canada's strong domestic backdrop, including
data on Tuesday that showed an unexpected jump in inflation and
solid retail sales, pointed to more upside for the Canadian
dollar, especially if the Bank of Canada speeds up its
rate-hiking campaign as a result.
 "Yesterday's fundamental data was supportive of a stronger
Canadian dollar and of pulling forward the interest rate hiking
expectation, so that's been good for the Canadian dollar," said
Scotia's Sutton. All eyes are now on next week's monthly jobs
numbers.
 Canadian government bond prices were lower across the
curve, tracking stumbling Treasury prices after the U.S. data
undermined the safe-haven appeal of government debt. [US/]
 The two-year government of Canada bond CA2YT=RR was down
16 Canadian cents to yield 1.738 percent, while the 10-year
bond CA10YT=RR  dropped 75 Canadian cents to yield 3.198
percent.
 (Editing by Peter Galloway)