CANADA FX DEBT-C$ top performer on Cyprus deal, capped by lingering worry

Mon Mar 25, 2013 9:48am EDT
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* C$ at C$1.0203 vs US$, or 98.01 U.S. cents
    * Bond prices lower acruss curve
    * January GDP key data this week

    By Solarina Ho
    TORONTO, March 25 (Reuters) - The Canadian dollar was a top
performing currency on Monday, strengthening against the U.S.
dollar as investors turned to riskier assets, bolstered by a
rescue deal between Cyprus and its lenders.
    The Cyprus deal includes plans to shut down the island's
second-largest bank in return for a 10 billion euro bailout.
    The deal also helped risk appetite in other markets, boosted
commodity prices and also pushed up pushed other
commodity-linked currencies like the Australian dollar.
    The market relief was limited, however, as investors worried
about the future implications of the bailout and other
struggling euro zone countries.
    "The relief for the euro at least for the Cyprus deal has
been very short-lived," said Charles St-Arnaud, economist and
currency strategist at Nomura Securities in New York.
    "It seems like investors are turning back to looking at the
broad issue of the euro zone. The Cyprus deal is good news, but
the rest of the zone is still (in trouble)."
    Worries about an economic slowdown in the currency bloc,
political uncertainty in Italy, and prospects of the European
Central Bank easing monetary policy in coming months to support
growth were also expected to weigh on the currency. 
    At 9:17 a.m. (1317 GMT), the Canadian dollar, which
was outperforming all other major currencies, was trading at
C$1.0203 versus the greenback, or 98.01 U.S. cents. This was
stronger than Friday's North American session close at C$1.0233,
or 97.72 U.S. cents.
    Earlier in the session it had touched C$1.0188, its best
performance in a week. 
    The currency was expected to trade between C$1.0160 and
C$1.0220, according to Scotiabank.
    Looking ahead, the key data this week for the Canadian
dollar will most likely be the monthly GDP figures on Thursday.
    "For what we've seen so far for January, growth will be
relatively weak, said St-Arnaud, who is expecting no growth at
all in January. "That will probably bring the focus for
investors to the Canadian economy, that it's not as strong as it
was only a year ago."
    Data released by the Commodity Futures Trading Commission on
Friday showed traders had once again increased their short
positions in the Canadian dollar, indicating an expectation that
the currency will weaken. 
    Prices for Canadian government debt were mostly lower across
the curve, with the two-year bond off 1.5 Canadian
cents to yield 1.002 percent and the benchmark 10-year bond
 easing 7 Canadian cents to yield 1.828 percent.