CANADA FX DEBT-C$ dips vs battered greenback, NDP surge eyed

Thu Apr 28, 2011 9:19am EDT
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 * C$ falls to $1.0515
 * Underperforms other commodity-linked currencies
 * Markets wary of uncertainty as NDP surges in polls
 * Bonds follow Treasuries higher
 By Claire Sibonney
 TORONTO, April 28 (Reuters) - The Canadian dollar was down
slightly against its U.S. counterpart on Thursday as support
from the greenback's broadbased slide was offset by concern
about the spillover effect of a slower U.S. recovery.
 The U.S. dollar plumbed a three-year low against a basket
of currencies a day after the U.S. Federal Reserve signaled it
would prolong its ultra-loose monetary policy. [FRX/]
 Concern about the U.S. recovery was reinforced by data on
Thursday that showed U.S. GDP growth fell to 1.8 percent annual
rate in the first quarter of 2011 after a 3.1 percent fourth
quarter rise. U.S. jobless claims jumped in the latest week.
 "Part of it is the fact that the U.S. recovery is on track,
but it's not a  strong recovery," said Charles St-Arnaud,
Canadian economist and currency strategist at Nomura Securities
International in New York.
 At 8:54 a.m. (1254 GMT), the Canadian dollar CAD=D4 stood
at C$0.9510 to the U.S. dollar, or $1.0515, weakening from
Wednesday's North American finish at C$0.9504 the U.S. dollar,
or $1.0522. Earlier, it hit C$0.9465, or $1.0565, it's
strongest level since April 21, when the currency reached a
3-1/2 year high.
 St-Arnaud noted that the Canadian dollar hasn't appreciated
as much recently as other commodity-linked currencies.
 The Canadian dollar is still facing the headwind of
uncertainty over the May 2 federal election, with support for
the left-leaning New Democrats unexpectedly surging.
 A poll on Wednesday showed support for the second place NDP
topping 30 percent and closing in on the Conservatives' lead.
 Analysts warned big gains for the party could trigger a
knee-jerk drop in the currency and Canadian equity markets as
investors fret about NDP plans to raise corporate taxes, spend
more and redo energy policy. [ID:nN27126329]
 While the NDP are perceived to be less business-friendly,
St-Arnaud noted its programs are not vastly different and
suggested the party's popularity in Quebec over the separatist
Bloc Quebecois could also be seen as a positive for
international investors wary of another referendum.
 "The election talk is creating noise more than anything
else," said St-Arnaud.
 He also noted interest rate differentials between Canada
and the United States will continue to be supportive.
 The U.S. central bank is lagging other countries in
tightening its monetary policy. The Bank of Canada is widely
expected to resume raising interest rates as early as this
summer. [CA/POLL]
 Higher interest rates often support currencies because they
tend to attract international capital flows.
 Canadian bond prices rose across the curve, mimicking U.S.
Treasuries following the tepid U.S. GDP data. [US/]
 The two-year bond CA2YT=RR was up 7 Canadian cents to
yield 1.743 percent, while the 10-year bond CA10YT=RR gained
24 Canadian cents to yield 3.244 percent.
 (Editing by Jeffrey Hodgson)