September 10, 2009 / 9:28 PM / 10 years ago

CANADA FX DEBT-C$ rises with resources, Bank of Canada

 * Canadian dollar gains strength from stock market rise
 * Bank of Canada stance supports currency
 * Market shrugs off government budget deficit forecasts
 * Bonds rise; focus on new issues  (Updates prices, adds comment)
 By Ka Yan Ng
 TORONTO, Sept 10 (Reuters) - The Canadian dollar CAD=D3 held higher against a generally weaker U.S. currency on Thursday, drawing support from stock market gains and a rosier economic outlook from the Bank of Canada.
 A buoyant equity market in Toronto, spurred by a rally of resource shares, helped the commodity-linked Canadian dollar climb from Wednesday’s close. It closed just shy of its overnight peak at C$1.0776 to the U.S. dollar, or 92.80 U.S. cents.
 The Canadian dollar finished at C$1.0783 to the U.S. dollar, or 92.74 U.S. cents, up slightly from Wednesday’s close at C$1.0810 to the U.S. dollar, or 92.51 U.S. cents.
 “If equities continue to make gains...and commodities still remain strong, (the Canadian dollar) will have no choice but to strengthen,” said John Curran, senior vice president at CanadianForex.
 Early support for the currency came from the Bank of Canada, which said growth in the second half of the year could be stronger than it had forecast. The bank also left its benchmark interest rate unchanged at a stimulative 0.25 percent, as expected. [ID:nN10390757]
 The Canadian dollar took some comfort that the central bank didn’t make any changes to its stance on the currency’s appreciation. The Bank of Canada once again warned that persistent strength in the Canadian dollar remains a risk to economic recovery and to inflation. But its language on the currency was no tougher than in recent statements and speeches.
 “We did see the currency strengthen somewhat but not in a huge way,” said Doug Porter, deputy chief economist at BMO Capital Markets.
 “I think perhaps the currency market was a bit relieved that there wasn’t a stronger (Bank of Canada) statement (on the Canadian dollar) and it may have benefited from their upward adjustment in their growth call.”
 The currency largely shrugged off revised budget figures from the government, which pushed back by at least two years its projected return to a balanced budget. [ID:nN10410511]
 Canadian government bonds were higher across the curve on Thursday after several days of decline, disassociating from the typical inverse relationship with stocks, which also advanced.
 One analyst said the spotlight was on a recent wave of new debt and equity issues.
 “Since everyone came back from Labor Day holidays, there’s been just a flood of new issuance in North America,” said    Sheldon Dong, fixed income analyst at TD Waterhouse Private Investment. “That is where I think most of the focus is right now, just a really healthy market for primary debt and equity issuance.
 “So the secondary market trading is in the background.”
 Recent issues include share offerings from Barrick Gold (ABX.TO) and Fairfax Financial Holdings Ltd (FFH.TO), while Royal Bank of Canada (RY.TO) said it may raise funds in debt or preferred shares.
 The two-year bond CA2YT=RR was up 8 Canadian cents at C$99.60 to yield 1.207 percent, while the 10-year bond CA10YT=RR gained 70 Canadian cents to C$103.45 to yield 3.330 percent. The 30-year bond CA30YT=RR rose C$1.36 to C$119.11 to yield 3.869 percent.
 Canadian bonds mostly underperformed their U.S. counterparts. The Canadian 10-year bond yield was 2.5 basis points below its U.S. counterpart, compared with 6.3 basis points on Wednesday.  (Editing by Peter Galloway)                                                  

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