November 10, 2010 / 10:23 PM / 10 years ago

CANADA FX DEBT-C$ closes at parity for first time since April

   * Better than expected U.S. data lends support
 * Oil price ends at 25-month peak
 * Bonds mixed after data, auctions
 * CIBC sees C$ slipping from parity next year  (Updates to close with details, commentary)
 By Claire Sibonney
 TORONTO, Nov 10 (Reuters) - Canada’s dollar closed exactly at par with the greenback for the first time since April on Wednesday, helped by stronger-than-expected U.S. economic data.
 The better U.S. data, including a decline in weekly initial jobless claims and narrowing trade gap, had some analysts suggesting the economy of Canada’s largest trading partner was gaining traction after months of frustratingly slow growth. [ID:nN10164638]
 “What’s better for the U.S. is certainly better for Canada, so it’s a bit of a buy-and-sell North American phenomenon right now,” said Steve Butler, director of foreign exchange trading at Scotia Capital.
 The U.S. dollar hit a one-month high against the euro and yen, as rising U.S. bond yields prompted traders to cut bets against the greenback. [FRX/]
 The Canadian dollar CAD=D4 finished at the one-for-one level to the U.S. dollar, up from C$1.0074 to the U.S. dollar, or 99.27 U.S. cents, at Tuesday’s close.
 It has hit parity multiple times since October but it was the first time the currency closed exactly at parity since April. It hit a session high of 99.94 Canadian cents to the U.S. dollar, or $1.0006.
 The currency also gained as the price of oil, a major Canadian export, hit a 25-month peak. [O/R]
 The Canadian dollar had stumbled earlier in the session as traders initially sold the currency on news Canada’s trade deficit widened more than expected in September, as exports to the United States tumbled to their lowest level in almost a year. [ID:nN10169238]
 Butler said there is still significant support for the greenback at 99.80 Canadian cents to the U.S. dollar, or $1.002, a level last seen on Tuesday.
 But trading volumes are expected to drop due to Canada’s Remembrance Day and U.S. Veterans Day holidays, which will close bond markets.
 Looking further out, CIBC predicted in a report that Canada’s currency will likely hover around parity with the U.S. dollar until year end, but could weaken in early 2011, hurt partly by weaker commodities. [ID:nN09115367]
 Market players are also monitoring developments ahead of the Group of 20 leaders’ summit on Thursday and Friday in Seoul, and simmering tensions over economic policy between Beijing and Washington have been front and center.
 Domestic government bond prices were uneven after the mixed data and auction results in Canada and the United States.
 The two-year bond CA2YT=RR was up 7 Canadian cents to yield 1.575 percent, while the 10-year bond CA10YT=RR gained 2 Canadian cents to yield 2.974 percent.
 Canada’s auction of two-year bonds met with sizable demand as investors still saw decent value following the U.S. Federal Reserve’s announcement last week of massive stimulus.
 The short end of the curve is further supported by expectations that the Bank of Canada will not be in a rush to resume its rate hiking campaign. [ID:nN10186857]
 “A lot of people are taking a look at the curve right now and saying ‘okay well is it possible the Bank of Canada hikes less aggressively than we think in 2011?’ said Ian Pollick, portfolio strategist at TD Securities. “If that’s the case then 2s are probably a good buy if you don’t think rate hikes are coming down the line.”
 In new corporate issues, Cogeco Cable (CCA.TO) sold C$200 million of 10-year notes. [ID:nN10192788]   (Editing by Jeffrey Hodgson)                                                      

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