CANADA FX DEBT-C$ tracks equities retreat as Fed concerns weigh

Fri May 24, 2013 10:09am EDT
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* C$ at C$1.0326 vs US$, or 96.84 U.S. cents
    * Equity and currency markets volatile on Fed stimulus
    * Bond prices generally higher across curve

    By Solarina Ho
    TORONTO, May 24 (Reuters) - The Canadian dollar retreated
against the U.S. dollar on Friday, in sync with weaker global
equity markets and other commodity currencies, as investors
worried that the U.S. Federal Reserve could rein in its stimulus
    Equity markets have hit their highest levels in years in
recent weeks, bolstered by stimulus measures taken by the Fed
and other central banks. Worries that the Fed may begin tapering
its $85 billion a month bond purchases sent a gauge of global
equity markets to its second biggest daily loss of the year on
    "We're still seeing heightened volatility in currency
markets. A lot of that is obviously relating to some of the
equity market activity," said Blake Jespersen, managing
director, foreign exchange sales, adding that the Canadian
dollar was in a consolidation mode.
    "It seems to be comfortable trading around the C$1.0350 area
and it doesn't look like we'll see a lot more weakness over the
coming day or so. I think we've flushed out some of the overly
long U.S. dollar positions in the last day or so."
    At 9:55 a.m. (1355 GMT), the Canadian dollar was
trading at C$1.0326 against the U.S. dollar, or 96.84 U.S.
cents, after ending Thursday's North American session C$1.0294,
or 97.14 U.S. cents.
    The currency, which is trading around its weakest level in
about 11 months, has shed some 3.2 percent since May 8, when it
closed at C$1.0030, its strongest finish since mid-February.
    It was weaker against most other major currencies, except
for its commodities peers, the Australian and New
Zealand dollars, which were the weakest performers.
    Jespersen expected the Canadian dollar to trade between
C$1.0320 and C$1.0350 on Friday. 
    Investors are unlikely to build fresh positions ahead of a
long weekend in the United States and in Britain and Jespersen
said the market may see a little bit of profit taking on the
long U.S. dollar positions that have built up significantly in
recent weeks.
    "The U.S. rally is somewhat intact, it's just taking a
little bit of a breather as we end the week here," he said.
    Prices for Canadian government debt were mostly higher, with
the two-year bond adding half a Canadian cent to
yield 1.034 percent and the benchmark 10-year bond 
up 9 Canadian cents to yield 1.951 percent.