RPT-CANADA FX DEBT-C$ sags, but off lows with commodities rally

Wed May 25, 2011 5:47pm EDT
 
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 (Repeats to fix verb tense in first paragraph)
 * C$ eases to C$0.9779 to the U.S. dollar, or $1.0226
 * Bond prices rise on euro-zone concerns
 * Canada three-year bond auction receives strong demand
 By John McCrank
 TORONTO, May 25 (Reuters) - Canada's dollar weakened
slightly on Wednesday, though rallying commodity prices helped
the currency rebound from early-session lows triggered by
Europe's sovereign debt problems.
 The currency hit its weakest level against the greenback
since March 28 -- C$0.9816 to the U.S. dollar, or $1.0186 --
early in the day as investors fretted over Greece's ability to
impose tough austerity measures and the possibility that it may
have to restructure its debt. [ID:nLDE74O0PW]
 The concerns initially gave a bid to the safe-haven U.S.
dollar and weighed on commodity-linked currencies, like the
Canadian dollar. The euro slumped to a record low against the
Swiss franc. [ID:nN25168177]
 The Canadian dollar CAD=D4 ended the North American
session at C$0.9779 to the U.S. dollar, or $1.0226, down from
C$0.9761 to the U.S. dollar, or $1.0245, at Tuesday's close.
 "The fact that we're closing around where we closed
yesterday hides some of the movement that we saw today and
certainly hides what's happened in other markets," said Camilla
Sutton, chief currency strategist at Scotia Capital.
 Commodity markets gained steam during the session. That
boosted resource stocks, which helped Wall Street end a
three-day slump and the Toronto Stock Exchange rise more than 1
percent. [ID:nN25169951] [ID:nTZOPGE72G]
 Canada is a major exporter of commodities and moves in
their prices often influence the country's currency.
 Gold prices XAU= surged to a three-week high above $1,532
per troy ounce. [GOL/]
 U.S. oil prices also rose, hitting a two-week high above
$101 a barrel after U.S. data showed an unexpected drop in
inventories of distillates. [O/R]
 The Reuters-Jefferies CRB index .CBR, a global benchmark
made up of a basket of 19 commodities, rose 1.53 percent, with
copper [MET/L] up nearly 3 percent and wheat [GRA/] up over 2
percent. [ID:nLDE74O0GQ]
 The Canadian dollar has been on a downward trend versus the
greenback in recent weeks, and the late session rally was not
enough to reverse that trend.
 "For the past week we have sort of chipped away at rate
expectations in Canada, and so that's had some impact in Canada
as far as undermining the Canadian dollar," said Mark Chandler
head of Canadian fixed income and currency strategy at RBC
Capital Markets.
 Rate hike expectations have been diminished by
disappointing economic data and dovish comments from Bank of
Canada Governor Mark Carney. [ID:nN20206551]
 The central bank's next policy setting meeting is May 31.
Swaps markets show that over the past week traders have cut
their bets on rate hikes at every Bank of Canada announcement
date from July to December. BOCWATCH
 The Bank of Canada's key policy rate has remained at 1
percent since September.
 BONDS RISE
 Canadian bond prices rose on safe haven buying, and were
given an additional boost by strong results of government debt
auctions in both Canada and the United States.
 "We had a very strong three-year auction in Canada and a
very strong five year auction in the U.S. and so both of those
helped influence that market in particular," Chandler said.
 A C$3 billion auction of three-year Canadian government
bonds produced an average yield of 2.037 percent, down from
2.251 percent at the last three-year bond auction in April.
[ID:nN25144456]
 There was just under C$8.3 billion in bids from primary
dealers, resulting in a bid-to-cover ratio of 2.766, higher
than the 2.5 average of the past five auctions, and the highest
for a three-year auction since August 2010.
 The three-year bond CA3YT=RR ended up 8 Canadian cents to
yield 1.909 percent.
 Canada's two-year bond CA2YT=RR gained 3 Canadian cents
to yield 1.586 percent, while the 10-year bond CA10YT=RR
added 19 Canadian cents to yield 3.088 percent.
 (Editing by Jeffrey Hodgson)