CANADA FX DEBT-C$ rises to near 3-year high, backed by oil

Fri Feb 25, 2011 5:26pm EST
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   * C$ closes at C$0.9787, or $1.0218
 * Reaches highest level since March 2008
 * Rebound in equities symptomatic of renewed risk appetite
 * Recent commodity price spike provided supported
 * Bond prices mostly firmer
 (Adds details, analysts' comments)
 By Solarina Ho
 TORONTO, Feb 25 (Reuters) - The Canadian dollar closed near
three-year highs against its U.S. counterpart on Friday as risk
appetite returned on the back of stronger equities and recent
strength in oil prices.
 The Canadian dollar CAD=D4 closed at C$0.9787 to the U.S.
dollar, or $1.0218, up from Thursday's North American finish of
C$0.9832 to the U.S. dollar, or $1.0171.
 During the day it rose as high as C$0.9780, or $1.0225, its
loftiest level since March 2008, when it closed at C$0.9740.
 The gains came as Toronto's main stock index jumped back
above 14,000 in a broad relief rally led by the mining-heavy
materials sector and heavyweight banks. [.TO]
 The market relief came as fears of economic disruption due
to a surge in oil prices spurred by the Libyan crisis were
soothed by news that Saudi Arabia has increased production.
Canada is a major oil exporter and although crude prices were
down from Thursday's 2-1/2 year highs highs, they were still
strong on Friday and allowed the currency to break the C$0.98
 Oil prices were firmly higher on the week. [O/R]
 "It was risk appetite today for sure. Equity markets were
up across the board -- that was the main driver," said Kam
Bath, a fixed income strategist at RBC Capital Markets.
 "(Oil) for sure has been underpinning it, and letting CAD
hold on to its gains."
 The currency also found some strength after Canada reported
its nine-month budget deficit shrank from a year earlier.
 Canada reports GDP figures on Monday and the Bank of Canada
will be announcing its next rate decision on Tuesday.
  "Canada has benefited a little bit from ... its relative
safe-haven status, considering all the things going on in the
world -- the unrest in the Middle East and Northern Africa,"
said Steve Butler, director of foreign exchange trading at
Scotia Capital.
 Some analysts said the Canadian dollar could continue to
test highs last seen before the financial crisis, with few
technical barriers in the way of further gains.
 But Jacqui Douglas, currency strategist at TD Securities,
said the currency's rise may be overdone.
 "The move lower in USD/CAD really has not had too much
momentum behind it. It seems like it's been a pretty slow grind
lower (for the U.S. dollar)," she said.
 "Looking at all the risks out there with the GDP, Bank of
Canada, and what's happening globally, I think the risk is a
bigger move to the upside (for the U.S. dollar) than a move to
the downside."
 Canadian bond prices were mostly higher, with the two-year
bond prices CA2YT=RR up 3 Canadian cents to yield 1.783
percent, while the 10-year bond CA10YT=RR added 22 Canadian
cents to yield 3.293 percent.
 (Editing by Peter Galloway)