CANADA FX DEBT-C$ turns positive after Bernanke comments

Fri Aug 27, 2010 12:21pm EDT
 
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   * C$ firms to 94.80 U.S. cents
 * Bernanke comments help revive demand for riskier assets
 * Bond prices tumble, Canada outperforms at long end
 (Updates following Bernanke testimony)
 By Jeffrey Hodgson
 TORONTO, Aug 27 (Reuters) - Canada's dollar pared early
losses to move higher against the U.S. currency on Friday, as
comments by Federal Reserve Chairman Ben Bernanke spurred
demand for assets that do best when the global economy is
growing.
 Bernanke warned on Friday the economic recovery has
softened more than expected. But he also said the Fed is ready
to take further steps if needed to spur the stumbling U.S.
economy. [ID:nN27259859]
 "The market is interpreting that the Fed stands ready to
probably go more in the way of quantitative easing," said
Charles St-Arnaud, Canadian economist and currency strategist
at Nomura International in New York.
 "There's the negative impact on the U.S. dollar that, in
theory, an increase in money supply should be negative for a
currency. But it's also that it could be a boost on confidence
(in growth) and on risky assets."
 Quantitative easing effectively means printing more money
to buy assets such as longer-term government debt in a bid to
drive down borrowing costs.
 At 11:58 a.m. (1558 GMT), the Canadian dollar CAD=D4 was
at C$1.0548 to the U.S. dollar, or 94.80 U.S. cents, compared
with C$1.0567 to the U.S. dollar, or 94.63 U.S. cents, at
Thursday's close.
 The currency initially weakened to a session low of
C$1.0650, or 93.90 U.S. cents, after Bernanke's comments were
first published.
 The Canadian dollar had been weaker overnight. One currency
strategist said news that Australian toll-road operator Intoll
Group ITO.AX has recommended a A$3.4 billion takeover bid
from Canada Pension Plan Investment Board may have weighed on
the Canadian dollar. Such a deal would typically involve the
sale of a large amount of Canadian dollars.
 BOND PRICES SLUMP
 Canadian bond prices tumbled after Bernanke's testimony,
mirroring losses in U.S. Treasuries. Bonds slid as Canadian
stocks jumped more than 1 percent, reducing demand for
safe-haven assets like government debt. [.TO]
 The two-year bond CA2YT=RR fell 11 Canadian cents to
yield 1.295 percent, while the 10-year bond CA10YT=RR fell 52
Canadian cents to yield 2.852 percent.
 But Canadian bonds mostly outperformed U.S. Treasuries,
with the Canadian 10-year yield 22.5 basis points above its
U.S. counterpart, down from about 31 basis points on Thursday.
 (With additional reporting by Ka Yan Ng and Claire Sibonney;
editing by Rob Wilson)