July 13, 2010 / 12:34 PM / 10 years ago

CANADA FX DEBT-C$ firms after Greek debt sale boosts risk play

 * Canadian dollar rises to 96.89 U.S. cents
 * Bonds prices soften across curve
 By Claire Sibonney
 TORONTO, July 13 (Reuters) - The Canadian dollar bounced higher against its U.S. counterpart on Tuesday as riskier assets garnered bids after Greece successfully returned to capital markets for the first time since a massive bailout package in May.
 Greece sold 1.625 billion euros ($2.03 billion) of 6-month T-bills at a slightly cheaper cost than the 5.0 percent it pays to borrow under the 110 billion euro loan that the European Union and International Monetary Fund put in place to calm a crisis that has shaken the euro zone. [ID:nLDE66C0DH]
 The Canadian dollar “is basically caught in the risk-on move that we’re seeing running through markets generally today,” said Adam Cole, global head of FX strategy at RBC Capital Markets.
 “The significant move came after the Greek bill auction this morning which is being taken by the market as having gone fairly well to the extent that Greece was able to borrow from the market at a low rate.”
 The smooth auction was offseting the negative effects of Moody’s downgraded of Portugal’s debt rating by two notches to A1 with a stable outlook, Moody’s said the government’s financial strength was likely to weaken over the near term. [ID:nWLA8184]
 Also whetting risk appetite, global equities advanced after Alcoa Inc (AA.N) delivered a strong start to the earnings season and oil rose above $75 a barrel as optimism about the economic recovery and stronger demand. [MKTS/GLOB] [O/R]
 At 8:00 a.m. (1400 GMT), the Canadian dollar CAD=D4 was at C$1.0321 to the U.S. dollar, or 96.89 U.S. cents, up from Monday’s finish at C$1.0375 to the U.S. dollar, or 96.39 U.S. cents.
 “On the day it’s doing fairly well in the sense that it’s outperforming the Aussie and the Kiwi, which have both also had a decent bounce,” said Cole.
 “But Canada is outperforming, which is probably a fair reflection of its fundamentals and something we expect to continue as the market prices in further Bank of Canada tightening.”
 Yields on overnight index swaps, which trade based on expectations for the Bank of Canada’s key policy rate, showed the market sees an 87 percent chance of a rate hike at its next policy announcement on July 20. BOCWATCH [CA/POLL]
 On a technical basis, Cole said the Canadian dollar was trapped between the range of C$1.0300 to C$1.0420 for now, and that a break of either side will determine the directional bias.
 Investors will also be following data on Canada’s May’s trade balance, which is expected to narrow from C$0.18 billion to zero.
 Canadian bond prices fell across the curve as investors flocked to higher-yielding assets following Greece’s debt sale.
 The two-year bond CA2YT=RR lost 3 Canadian cents to yield 1.699 percent, while the 10-year bond CA10YT=RR shed 13 Canadian cents to yield 3.229 percent.  (Editing by Padraic Cassidy)                                                      

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