February 9, 2011 / 7:12 PM / in 9 years

CANADA FX DEBT-C$ firmer after solid U.S. bond auction

 * C$ rises to C$0.9925 vs US$, or $1.0076
 * Canadian bonds, U.S. Treasuries up after auctions
 * LSE bid for TSX has little impact  (Adds analyst comment. Updates to afternoon)
 By Claire Sibonney
 TORONTO, Feb 9 (Reuters) - Canada’s dollar edged higher against the greenback on Wednesday, as a successful U.S. Treasury auction and partial recovery in stocks from early lows revived interest in currencies seen as higher risk.
 U.S. Treasury prices extended gains after a $24 billion auction of benchmark 10-year notes drew strong demand, helped by yields near 9-1/2-month highs.
 “Due to the very good auction, the U.S. dollar is weaker as we realize the world is still safe for more U.S. government debt,” said David Tulk, chief Canada macro strategist at TD Securities.
 At 1:31 p.m. (1831 GMT), the Canadian dollar CAD=D4 was at C$0.9925 to the U.S. dollar, or $1.0076, up from Tuesday’s North American session close at C$0.9946 to the U.S. dollar, or $1.0054.
 The currency traded in a narrow range between C$0.9915 and C$0.9956 to the U.S. dollar. On Tuesday it had slid to a one-week low at C$0.9978 versus the greenback, or $1.0022.
 Tulk placed short-term resistance for the Canadian currency at around C$0.9860 and support near C$1.05.
 Heading into the U.S. auction, market players were waiting for a catalyst to push the currency up or down, with commodity prices mixed and equities wading in the red.
 There was no domestic data on tap on Wednesday, nor major speeches or events, with investors looking to new house prices on Thursday and monthly trade figures on Friday for further direction.
 While no immediate impact on the Canadian dollar was felt in the aftermath of news that the London Stock Exchange (LSE.L) agreed to buy Canadian stock market operator TMX Group (X.TO) in an all-share deal, Tulk said the announcement is supportive longer-term. [ID:nLDE71808S]
 “This deal speaks to the structural strength in the Canadian economy that many foreign investors have noticed in recent months,” he said. “Continued demand for Canadian financial assets and companies will help provide additional strength to the currency.”
 Canadian government bonds rallied modestly on Wednesday following a decent auction of C$3.2 billion of domestic three-year bonds and the 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 3-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,” said Tulk. “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 climbed 13 Canadian cents to yield 1.370 percent, while the 10-year bond CA10YT=RR advanced 21 Canadian cents to yield 3.464 percent.  (With additional reporting by Ka Yan Ng; editing by Jeffrey Hodgson)                                                  

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