CANADA FX DEBT-C$ gains after stocks cut GDP-linked losses

Fri Jul 30, 2010 11:36am EDT
 
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 * C$ at 96.99 U.S. cents
 * Bond prices firm across curve
 * U.S., Canada GDP disappoint
 (Updates to late morning)
 By Claire Sibonney
 TORONTO, July 30 (Reuters) - The Canadian dollar held
higher against its U.S. counterpart on Friday as recovering
equity markets helped fuel demand for riskier currencies
following initial disappointment over soft North American
economic growth figures.
 U.S. stock indexes cut losses in wobbly trading after a
barometer of U.S. Midwest business activity in July jumped,
while consumer sentiment data for the month came in better than
expected. [.N]
 "Basically market confidence is still quite high around the
equities and that's flowed through to the commodity
currencies," said Darren Richardson, senior corporate dealer at
CanadianForex, a commercial foreign exchange firm.
 He noted, however, that weaker oil prices could weigh on
the Canadian dollar rally. [O/R]
 The currency hit a session low following U.S. and Canadian
GDP data earlier in the day before grinding higher again.
 U.S. gross domestic product slowed more than expected in
the second quarter, which drove investors to perceived safety
of the greenback in reaction. [ID:nN29111411]
 In Canada, growth in the economy edged up in May after
unexpectedly stalling in April, helped by strength in the
goods-producing sectors led by oil and gas extraction, while
services faltered for a second straight month. [ID:nN30434455]
 The Canadian data was not strong enough to boost the
currency, said Eric Lascelles, chief Canada macro strategist at
TD Securities.
  "The Canadian figure was a little soft, GDP wasn't quite
what the market had imagined but it was what we expected," he
said.
 "I think the market is a little disappointed. Coming on the
heels of a flat figure from April, it's hard to get too excited
about the recent trend in Canada."
 At 11:16 a.m. (1516 GMT), the Canadian currency CAD=D4
was at C$1.0310 to the U.S. dollar or 96.99 U.S. cents, up from
Thursday's finish at C$1.0362 to the U.S. dollar, or 96.51 U.S.
cents. Earlier, it touched a session high of C$1.0293 to the
U.S. dollar, or 97.15 U.S. cents.
 The Canadian currency has struggled recently to close
stronger than its 100-day moving average around C$1.03, said
Steve Butler, director of foreign exchange trading at Scotia
Capital.
 "The market will be happy to buy dollars at the $1.0280
area, C$1.03, somewhere in there, but if we get a close below
that level I think it's going to be quite positive for Canada,"
Butler said.
 Month-end foreign exchange flows also helped support the
Canadian dollar.
 "Hedge funds that have made a profit in U.S. equities have
to balance their books so they'll be selling their equities and
selling U.S. dollars to convert them back into Canadian," said
Richardson, noting that forecasts for continued higher interest
rates are also benefiting the currency.
 After the tame GDP data, Canadian bond prices remained
higher across the curve.
 The Canadian two-year bond CA2YT=RR was up 9 Canadian
cent to yield 1.486 percent, while the 10-year bond CA10YT=RR
added 15 Canadian cents to yield 3.142 percent.
 "You'd already seen a pretty sizable rally, people are
still keying off of the Fed President Bullard's quantitative
easing comments yesterday but it seems to me that you've got a
bit of an extra kick from the numbers this morning," Lascelles
said.
 On Thursday St. Louis Federal Reserve Bank President James
Bullard added to fears about the economy by saying he was
worried about the risks the United States might fall into a
Japan-style quagmire of falling prices and investment, driving
stocks and other riskier assets to retreat. [ID:nN29267085]
 (Reporting by Claire Sibonney; editing by Peter Galloway)