October 13, 2010 / 8:30 PM / in 10 years

CANADA FX DEBT-C$ ends firmer, fails to breach parity

   * Canada dollar ends at 99.52 U.S. cents
 * Flirts with parity several times
 * Bonds sag as equities rally
 * Canada 2-yr bond auction attracts firm demand
 (Updates to close)
 TORONTO, Oct 13 (Reuters) - The Canadian dollar flirted
with U.S. dollar parity on Wednesday, hitting its highest level
since late April, as the market looked forward to an injection
of cheap cash into the U.S. economy by the Federal Reserve.
 The expectation of quantitative easing by the U.S. central
bank -- essentially printing money to buy assets -- gave a lift
to equities markets and a bid to commodities. [MKTS/GLOB]
 The minutes of the Fed's latest policy-setting session,
released on Tuesday, showed officials had a "sense that (more)
accommodation may be appropriate before long," to help get the
economy back on track. [ID:nN12191658]
 Canada depends on the U.S. economy to take in about
three-quarters of its exports, which are tilted toward
commodities like oil, metals, and natural gas.
 The Canadian currency came within a whisper of parity with
the U.S. dollar several times during the North American session
but never rose beyond C$1.0011 to the U.S. dollar, or 99.89
U.S. cents, the currency's highest point against the greenback
since April 27.
 "It's still a very psychologically important level for
dollar/Canada. The fact that we do see it being tested a number
of times perhaps talks a little bit of a lack of conviction on
the part of markets to really push forward," said David Tulk,
senior macro strategist at TD Securities.
 "At this point, it's really a U.S. dollar weakness story
that is shared across all major crosses right now."
 The Canadian dollar CAD=D4 finished at C$1.0048 to the
U.S. dollar, or 99.52 U.S. cents, up from Tuesday's finish of
C$1.0106 to the U.S. dollar, or 98.95 U.S. cents.
 It looks set to bounce back above its U.S. counterpart for
the second time this year, but a slowing economy and flat
Canadian interest rates suggest a short-lived rally with little
underlying strength. [ID:nN13265832]
 Camilla Sutton, a currency strategist at Scotia Capital,
said the Canadian dollar would likely at least touch parity, as
it is "essentially there right now".
 She said the stronger currency helps confirm that the Bank
of Canada will stand pat on interest rates in the near term,
after raising its benchmark rate three consecutive times this
year to 1 percent.
 "Because it's been a U.S. dollar move, and not a Canadian
fundamentals story, that makes it almost more important for the
Bank of Canada," she said. "What that actually does is it
actually tightens policy for them."
 Bond prices fell as global equity markets gathered steam,
dampening the appeal of safe-haven government debt.
 Toronto's resource-heavy stock index hit its highest level
in more than two years, while major U.S. stock indexes also
climbed on rising expectations of additional stimulus from the
Fed. Strong U.S. corporate results from JPMorgan and Intel also
lifted sentiment.
 "The mood generally in bond markets isn't quite as
exuberant as it has been in recent weeks, in part because the
strong performance of equities is finally beginning to weigh on
the bond market," said Mark Chandler, head of Canadian fixed
income and currency strategy at RBC Capital Markets.
 The two-year bond CA2YT=RR fell 4 Canadian cents to yield
1.395 percent, while the 10-year bond CA10YT=RR was down 10
Canadian cents to yield 2.739 percent.
 Canada's auction of two-year bonds met with firm demand on
Wednesday, producing an average yield of 1.419 percent and a
bid-to-cover ratio of 2.425. [ID:nN13258719]
 (Reporting by Ka Yan Ng and John McCrank; editing by Rob

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