CANADA FX DEBT-C$ hits 3-1/2 yr high; brushes off GDP, election

Fri Apr 29, 2011 3:26pm EDT
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   * C$ rises to C$0.9450 vs US$, or $1.0582
 * Secular US$ slide, firm fundamentals cited
 * Light flows at month end accentuate move
 * Canada's February GDP shrinks unexpectedly
 * Markets eye NDP rise in election campaign
 (Updates with move to 3-1/2 year high)
 By Claire Sibonney
 TORONTO, April 29 (Reuters) - Canada's dollar hit a 3-1/2
year high against a broadly weaker U.S. currency on Friday,
shrugging off uncertainty over next week's federal election and
data that showed Canada's economy shrank unexpectedly.
 "The fact that the Canadian dollar continues to rally amid
a secular decline in the U.S. dollar is of no great surprise,"
said Jack Spitz, managing director of foreign exchange at
National Bank Financial.
 "The fact that it was able to withstand a miss on the GDP
and ahead of any kind of political uncertainties leading into
the election has been more of an indicator of the fundamental
support for the currency going forward."
 Canada's gross domestic product slipped 0.2 percent in
February, initially nudging the currency lower and reinforcing
expectations the central bank will hold interest rates steady
until the second half of this year. [ID:nN29119495]
 But the currency CAD=D4 later firmed to C$0.9450 to the
U.S. dollar, or $1.0582, its strongest level since November,
2007 and up from Thursday's North American finish at C$0.9510
to the U.S. dollar.
 Some analysts say breaking through that resistance could
see the currency target the modern-day high of C$0.9059, or
US$1.1039, that it reached in late 2007.
 Strong oil prices and positive U.S. equities also lent
support, as did sober second thoughts about the GDP miss.
 "It doesn't take much away from what's going to be a strong
first quarter for the Canadian economy, so any weakness that we
see in the Canadian dollar as a result of this number should be
relatively short-lived," said David Tulk, chief Canada macro
strategist at TD Securities.
 Contributing to the volatility was end-of-month positioning
and thin volumes due to holidays in Britain and Japan.
 Looking ahead, currency traders are keeping a close eye on
the upcoming federal election. The left-leaning New Democrats
have closed in on the ruling Conservatives just days before the
May 2 vote. [ID:nN29120747]
 The unprecedented success of the NDP has forced apathetic
markets to sit up and take notice of their platform, fretting
about plans to raise corporate taxes, spend more and redo
energy policy. [ID:nN27126329]
 "The only thing I think is going to be market-moving is the
election on Monday night. I think the NDP can play a spoiler
role in the Canadian dollar rally," said Firas Askari, head of
foreign exchange trading at BMO Capital Markets.
 "If they are the official opposition then I think people
will take some Canadian dollar bets off the table."
 Canadian bond prices extended gains across the curve after
the GDP data, outperforming U.S. Treasuries. [US/]
 The two-year bond CA2YT=RR was up 6 Canadian cents to
yield 1.704 percent, while the 10-year bond CA10YT=RR added
20 Canadian cents to yield 3.200 percent.
 (Additional reporting by Solarina Ho and Jeffrey Hodgson;
editing by Rob Wilson)