February 9, 2011 / 10:10 PM / in 9 years

CANADA FX DEBT-C$ pushes a bit higher, bonds rally

 * C$ rises to C$0.9939 vs US$, or $1.0061
 * Canadian bonds, U.S. Treasuries up after auctions
 * Bernanke, LSE’s bid for TSX have little impact  (Updates to close, adds trading comments)
 By Claire Sibonney
 TORONTO, Feb 9 (Reuters) - Canada’s dollar ended a touch higher against the greenback in undistinguished range-bound trade on Wednesday with investors shrugging off dovish U.S. Federal Reserve talk as well as a takeover bid for Toronto Stock Exchange operator TMX Group (X.TO) by the London Stock Exchange (LSE.L).
 In congressional testimony, Fed Chairman Ben Bernanke suggested U.S. economic conditions are still too weak for the central bank to pull back its vast monetary stimulus, despite a welcome drop in the jobless rate. [ID:nN09164124]
 “Even Mr. Bernanke today couldn’t inspire too much for the market, so it was a little bit of a let-down,” said Steve Butler, director of foreign exchange trading at Scotia Capital. “It’s been very uninspirational trade so far this week in a lot of the currencies.”
  The Canadian dollar CAD=D4 closed the North American session at C$0.9939 to the U.S. dollar, or $1.0061, up from Tuesday’s North American session close of C$0.9946 to the U.S. dollar, or $1.0054.
 Analysts said the LSE-TMX takeover deal will support the market longer term, but it had no immediate impact on Wednesday.[ID:nN09186774]
 “This deal speaks to the structural strength in the Canadian economy that many foreign investors have noticed in recent months,” said David Tulk, chief Canada macro strategist at TD Securities.
 Butler said that if the deal is approved by the federal government, it has the potential to push up the Canadian currency. But he noted Ottawa’s rejection of BHP Billiton’s $39 billion takeover move on fertilizer giant Potash Corp late last year.
 “All of a sudden this is just Potash all over again ... There’s a little bit of skepticism in the market,” he said.
 There was no domestic data on tap on Wednesday, nor major speeches or events, and investors looked to new home price figures on Thursday and monthly trade data on Friday for direction.
 Canadian government bonds rallied modestly on Wednesday following a decent auction of C$3.2 billion of domestic three-year bonds and a strong 10-year sale in the United States. [US/] [CA/AUC]
 Canada’s auction of three-year bonds saw bids from primary dealers total C$7.8 billion, resulting in a bid-to-cover ratio of 2.435. This was slightly stronger than the 2.425 of the last auction in December, and roughly in line with other three-year sales over the past year. [ID:nEMS1ILH9E]
 Following the sale, the existing benchmark three-year bond CA3YT=RR was up 4 Canadian cents to yield 2.059 percent.
 “It was a well-received auction, consistent with what we’ve seen,” Tulk said. “It’s comforting because after yesterday’s dismal three-year auction in the U.S., this does give us just a little bit of extra incentive that ‘look, the Canadian market is still well supported’.”
 Still, Canadian bonds lagged the price gains seen south of the border, with 10-year Treasury yields trading 20 basis points above the Canadian curve, compared with 25 basis points on Tuesday.
 The two-year Canadian government bond CA2YT=RR  added 3 Canadian cents to yield 1.870 percent, while the 10-year bond CA10YT=RR climbed 33 Canadian cents to yield 3.449 percent.
 “You’re seeing a bit of flattening in the Canadian curve where two years are underperforming after having outperformed for quite some time now,” added Tulk, noting  the yield is still too low, with that part of the curve underestimating the amount of tightening expected by the Bank of Canada.  (Editing by Peter Galloway)                                                  

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