CANADA FX DEBT-C$ hits 3-week high, oil, carry trade supports

Wed Mar 30, 2011 9:02am EDT
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 * C$ firms to C$0.9698, or $1.0311
 * Bonds mixed across the curve
 By Solarina Ho
 TORONTO, March 30 (Reuters) - The Canadian dollar hit its
highest level against the greenback in three weeks on
Wednesday, buoyed by underlying strength in commodities and a
return to risk.
 The price of Brent crude oil edged higher on Wednesday,
lifted by ongoing turmoil in the Middle East and North Africa,
though U.S. crude futures dipped slightly due to swelling U.S.
 The Canadian dollar "is outperforming most of the other
currencies," said Camilla Sutton, chief currency strategist at
Scotia Capital. "Generally, commodity currencies are strong
even though oil is slightly softer -- oil is still at very
elevated levels and general market tone is adding risk to
 "It's somewhat of a mixed underlying fundamental picture
for Canada, but it's still managing to rally, most likely just
on bullish sentiment on commodity currencies," she said.
 Sutton also noted increased chatter on the carry trade and
its rebuilding momentum, with safe-haven currencies like the
yen significantly weaker. The Canadian dollar strengthened in
sympathy with other commodity-linked currencies such as the New
Zealand dollar and the Australian dollar, both of which were
 Speculation that Japanese investors may reduce dollar
hedging positions related to their overseas investments is
helping shift focus back to economic fundamentals and
reinforcing the yen's status as a funding currency. [FRX/]
 At 8:25 a.m. (1325 GMT), the currency CAD=D4 stood at
C$0.9698 to the U.S. dollar, or $1.0311, up nearly half a cent
from Tuesday's North American finish of C$0.9747, or $1.0260.
 The Canadian dollar hit an overnight high of C$0.9686, or
$1.0324, its highest level since March 9, when it reached
C$0.9667, or $1.0344. That was its strongest level since
November 2007. [ID:nN09287031]
 Sutton expects the loonie to trade between C$0.9668 and
C$0.9750, with few economic drivers expected to motivate the
 Canadian government bond prices were mixed across the
curve. South of the border, U.S. Treasury prices edged higher
following a report that U.S. private sector jobs rose in March.
 Meanwhile, the president of the Federal Reserve Bank of
Dallas, Richard Fisher, became the latest U.S. central bank
official to issue hawkish comments, saying he would vote
against further monetary easing after the Fed's current $600
billion bond buying program ends in June. [ID:nN2984973]
 "U.S. yields have pushed higher over the last few sessions
and that's really been on the back of changing expectations for
the Fed. We've also seen a shift higher on general inflation
expectations but this morning we're seeing some of that
pressure have come off," said Sutton.
 The interest rate-sensitive two-year bond CA2YT=RR was up
2 Canadian cents to yield 1.786 percent, while the 10-year bond
CA10YT=RR lost 13 Canadian cents to yield 3.313 percent.
 (Editing by Leslie Adler)