CANADA FX DEBT-C$ firms vs struggling greenback, election weighs

Thu Apr 28, 2011 10:50am EDT
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 * C$ firms to $1.0542
 * Underperforms other commodity-linked currencies
 * Markets wary of uncertainty as NDP surges in polls
 * Bonds follow Treasuries higher on weak GDP
 (Recasts. Adds analyst comment, further details)
 By Solarina Ho and Claire Sibonney)
 TORONTO, April 28 (Reuters) - Canada's dollar strengthened
against its U.S. counterpart on Thursday, boosted by the
greenback's broadbased slide following dovish comments by the
U.S. Federal Reserve and underwhelming economic data.
 The U.S. dollar plumbed a three-year low against a basket
of currencies a day after the Fed 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 a
weaker-than-expected 1.8 percent annual rate in the first
quarter and 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 10:06 a.m. (1406 GMT), the Canadian dollar CAD=D4
stood at C$0.9486 to the U.S. dollar, or $1.0542, strengthening
from Wednesday's North American finish at C$0.9504 the U.S.
dollar. 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
 Analysts noted the Canadian dollar has underperformed other
commodity-linked currencies, but is still expected it to remain
firm against a soft U.S. dollar.
 "We expect to see new lows in USD/CAD as loose monetary
policy in the U.S., soon to be tighter policy in Canada, strong
Canadian fundamentals, a relatively better Canadian fiscal
position, investor sentiment and strong commodity prices all
weigh," Camilla Sutton, chief currency strategist at Scotia
Capital wrote in a note.
 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. [ID:nN28228823]
 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 5.5 Canadian cents to
yield 1.748 percent, while the 10-year bond CA10YT=RR gained
26 Canadian cents to yield 3.242 percent.
 (Editing by Jeffrey Hodgson)