CANADA FX DEBT-C$ firms as Fed comments digested. bonds mixed

Tue Mar 29, 2011 8:53am EDT
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 * C$ firms to C$0.9763, or $1.0243
 * Bonds mixed across the curve
 * Market split over hawkish Fed comments
 By Solarina Ho
 TORONTO, March 29 (Reuters) - The Canadian dollar was
marginally stronger on Tuesday against the U.S. currency,
which weakened after expectations for a euro-zone rate hike
pushed the euro higher, but gains were capped following
hawkish comments from the U.S. Federal Reserve.
 Fed President James Bullard said on Tuesday the U.S.
central bank may normalize monetary policy before global
uncertainties like the aftermath of the Japanese tsunami and
earthquake and violence in the Middle East and North Africa
were resolved.
 Bullard's comments were stronger than the dovish remarks
made by other Fed officials on Monday, but were more in line
with central bank statements made on Friday. [ID:nN25260798]
[ID:nN28221312] [ID:nLDE72S0RJ] [FRX/]
 "The members of the FOMC have been very consistent in the
message that the end of QE2 is coming. And obviously, the
question is, what exactly is that going to mean for Canada
with commodity prices coming off a little bit?" said Steve
Butler, director of foreign exchange trading at Scotia
 He noted the market has been split about Canada. A
stronger economy in the United States -- the country's biggest
trading partner -- benefits the Canadian economy.
 "That's probably offsetting a little bit of the weaker
commodity story ... It's still a while before the Fed does
anything, but I certainly think the hawkish comments are being
taken to heart by the market," Butler said.
 Oil prices, which often influence the direction of the
commodity-linked currency, have come off recent highs as
expectations increased that crude supplies in Libya would be
restored quickly. U.S. crude prices remained above $100,
however. [O/R]
 At 8:22 a.m. (1322 GMT), the currency CAD=D4 stood at
C$0.9763 to the U.S. dollar, or $1.0243, up from Monday's
North American finish of C$0.9766, or $1.0240.
 Comments over the weekend by Bank of Canada Governor Mark
Carney that hinted that rate hikes, while not imminent, were
on the horizon also kept the Canadian dollar from losing too
much steam, Butler added.
 With no Canadian economic data to drive direction, the
currency could derive some movement on U.S. data and is seen
trading between C$0.9720 on the resistance side and over
C$0.9800 on the support side.
 Canadian government bond prices were mixed across the
curve. The interest rate-sensitive two-year bond CA2YT=RR
was 1 Canadian cent higher, yielding 1.760 percent, while the
10-year bond CA10YT=RR lost 6 Canadian cents to yield 3.277
 "The bond market is kind of like FX market -- swinging in
the wind a little bit, based on the latest headlines and the
latest sentiment," Butler said.
 (Reporting by Solarina Ho; Editing by Jan Paschal)