December 15, 2010 / 7:30 PM / 10 years ago

CANADA FX DEBT-C$ inches closer to parity with U.S. dollar

 * C$ a whisker below par
 * Canadian bond prices flat to higher across curve
 * Two-year bond auction attracts healthy demand
 (Adds details)
 By Ka Yan Ng
 TORONTO, Dec 15 (Reuters) - The Canadian dollar was within
a tick of parity with the U.S. currency on Wednesday afternoon,
helped by optimism spurred by bullish North American economic
 Canadian factory sales grew faster than expected in October
while the home resale market appeared stable in November,
setting the stage for steady but tame economic growth in the
final months of this year. [ID:nN15123908]
 A heavy slate of U.S. data also added support. U.S.
industrial production rebounded in November and consumer prices
were up mildly in the same month, suggesting an acceleration in
the pace of the recovery but not one strong enough to prevent
the U.S. Federal Reserve from completing its bond buying
program. [ID:nN15122981]
 At 1:55 p.m. (1855 GMT), the Canadian dollar CAD=D4 stood
at C$1.0031 to the U.S. dollar, or 99.69 U.S. cents, rising
from Tuesday's close of C$1.0065 to the U.S. dollar, or 99.35
U.S. cents.
 It had jumped as high as C$1.0001 to the U.S. dollar, or
99.99 U.S. cents, its highest level since Nov. 11, which was
the last time the Canadian dollar was on a one-for-one footing
with the U.S. currency.
 "The Canadian dollar is making a bit of a run. It's hugely
a data-heavy day more than anything else and that may be
contributing to markets to some extent. Canada had quite an
impressive manufacturing out-turn," said Eric Lascelles, chief
macro strategist at TD Securities.
 "From a purely economic perspective the market is feeling
better and the Canadian dollar is benefiting from that. But
it's not something that the entire financial market is taking
heed of."
 Main equity market indexes were lower in both Canada and
the United States, and commodity prices were mixed.
 Canada's auction of two-year government bonds met with
healthy appetite on Wednesday, with results in line with recent
auctions across the yield curve.
 The sale of C$3 billion of government of Canada bonds, due
March 1, 2013, produced an average yield of 1.787 percent, up
from 1.556 percent at the previous auction in November.
 Bids from primary dealers totaled C$6.935 billion,
resulting in a bid-to-cover ratio of 2.312, lower than the 2.45
of the previous two-year auction but roughly in line with other
two-year sales over the past year, highlighting the steady
appetite for short-dated issues. <CAGOVT/1>
 The ratio is a gauge of investor demand and a reading above
2 typically suggests a healthy appetite.
 "In the last couple of weeks, the Bank of Canada has shown
no inclination to shift towards a rate hike so there's a
greater comfort holding short-dated bonds and perhaps that
contributed to the success of the auction," Lascelles said.
 "But truth be told, Canadian auctions have generally gone
pretty well all the way through. No one is choking on any
 The interest-rate sensitive two-year bond CA2YT=RR edged
7 Canadian cents higher to yield 1.717 percent, while the
10-year bond CA10YT=RR climbed 25 Canadian cents to yield
3.320 percent.
 (Editing by Peter Galloway)

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