CANADA FX DEBT-C$ rises as economic hopes gather strength

Fri Jul 31, 2009 4:45pm EDT
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 * C$ finishes at C$1.0775 to the U.S. dollar
 * Up 0.5 percent for the week
 * Bonds higher as investors digest U.S. GDP data
  (Adds details, quote)
 By Jennifer Kwan
 TORONTO, July 31 (Reuters) - The Canadian dollar rose
against the U.S. currency on Friday, eking out its third
straight weekly gain, as the view that the global economy is on
the path to recovery gained strength and buoyed riskier
 During the day the Canadian unit rose as high as C$1.0763
to the U.S. dollar, or 92.91 cents, shrugging off data that
showed Canada's economy contracted for the 10th straight month
in May as weak global demand hit the energy and manufacturing
sectors. [ID:nN31434455]
 Confidence was boosted by U.S. figures that showed the
American economy contracted less than expected in the second
quarter. [ID:nN31416560]
 The Canadian currency had "another good day" as investor
confidence remains relatively strong, said Steve Butler,
director of foreign exchange trading at Scotia Capital.
 "The markets are starting to feel better and better about
the world being a safe place again. We've continued to see
people unwinding safe haven trades," he said.
 Strong corporate earnings globally have helped ignite a
rally in many higher-yielding assets this month as risk
appetite has picked up after drying up for much of June.
 The Canadian dollar is up nearly 8 percent in July after a
skid of 6 percent in June.
 The Canadian currency finished the session at C$1.0775 to
the U.S. dollar, or 92.81 U.S. cents, up from C$1.0842 to the
U.S. dollar, or 92.23 U.S. cents, at Thursday's close. It is up
0.5 percent for the week.
 "Part of it is the spike in oil prices and that has helped
the Canadian dollar sprout some wings," said Eric Lascelles,
chief economics and rates strategist, TD Securities.
 The price of oil CLc1, a key Canadian export, climbed to
settle above $69 a barrel, [ID:nSP388652] while gold prices
were also higher.
 The currency may also have benefited from month-end
portfolio adjustments, experts said.
 "A lot of people rebalance their portfolio toward month end
so there's a lot of flows that come in as people are adjusting
their hedges," Butler said.
 George Davis, chief technical strategist at RBC Capital
Markets, said if the Canadian dollar can manage to close above
C$1.0784 to the U.S. dollar, or 92.73 U.S. cents, it would
indicate a bearish sentiment towards the U.S. dollar and open
the door for a move toward C$1.0600, or 94.34 U.S. cents.
 Canadian bond prices were higher across the curve as the
market followed the U.S. Treasury market, where prices rose on
caution over a weak consumer spending reading in the U.S. GDP
report. [ID:nN31437660]
 "My sneaking suspicion is that Canada has gone along for
the ride with the U.S.," Lascelles said. "The market is perhaps
dwelling on the consumer spending picture that was painted in
the U.S. GDP number."
 The two-year Canadian bond was up 11 Canadian cents at
C$99.16 to yield 1.415 percent, while the 10-year bond rose 77
Canadian cents to C$102.35 to yield 3.465 percent.
 The 30-year bond was was up C$1.75 to C$117.50 to yield
3.956 percent. In the United States, the 30-year Treasury
yielded 4.3002 percent.
 Canadian bonds mostly underperformed U.S. Treasuries. The
Canadian 30-year bond was 34.4 basis points below the U.S.
30-year yield, compared with about 37 basis points below on
 (Reporting by Jennifer Kwan; editing by Peter Galloway)