December 17, 2010 / 9:57 PM / in 10 years

CANADA FX DEBT-C$ slides for second session, bonds rise

 * C$ slides to 98.74 U.S. cents
 * Canadian bond prices rise in light volume
 (Updates to close)
 TORONTO, Dec 17 (Reuters) - The Canadian dollar ended lower
against the U.S. currency for a second straight session on
Friday as investors trained their focus on the troubles in the
euro zone, which spurred a flight to safety to the U.S.
 Canada's currency fell as low as C$1.0147 to the U.S.
dollar, or 98.55 U.S. cents, its lowest point since Dec. 2, as
the euro came under pressure after Moody's Investors Service
slashed Ireland's credit rating by five notches.
 The credit rating agency also warned that further
downgrades could follow if Ireland is unable to stabilize its
debt situation.
  "It's essentially a U.S. dollar strength kind of day,"
said Sacha Tihanyi, currency strategist at Scotia Capital. "It
seems like the positive news about the euro has worn off fairly
 The Canadian dollar CAD=D4 finished at C$1.0128 to the
U.S. dollar, or 98.74 U.S. cents, down sharply from its
Thursday's finish of C$1.0059 to the U.S. dollar, or 99.41 U.S.
cents. For the week, it is down 0.33 percent.
 Looking ahead, next Tuesday's Canadian consumer price index
report for November will likely be the highlight of the week,
while October figures for retail sales and monthly GDP will
also be considered.
 If the forecasts are correct, the CPI report will prove
that the surprising jump in October's annual inflation rate to
2.4 percent was just a blip and therefore not a concern for the
Bank of Canada. [ID:nN17250600]
 "I think a lot of people are looking to see if that
increase was substantiated or not," said David Tulk, senior
macro strategist at TD Securities, who is looking for inflation
to return below the Bank of Canada's 2.0 percent target.
 "That is broadly consistent with price trends that existed
prior to the October increase. That in our mind provides some
indication that the Bank of Canada doesn't have an inflation
problem and that October was really an abnormality."
 Inflation had been lower than expected for much of the
year, so markets are looking for reassurance that the trend
won't suddenly be reversed. Such a reassurance would leave the
central bank in a comfortable position to hold its key interest
rate unchanged at 1 percent for at least the first quarter of
 Canadian bonds were higher across the curve, tracking
prices of U.S. Treasuries, as investors took advantage of a
recent back-up in U.S. yields to purchase debt, while some
investors also took the view that the market has been pricing
in too much economic improvement too fast. [US/]
 Weakening stock markets also helped the less risky
government bond market attract investors.
 Flows were moderating as year-end approaches.
 "Volumes are quite light and there just seems to be this
sense that markets are going long right now. A lot of the
positioning has largely taken place, so it's just the last
couple of guys squaring up for the end of the year," Tulk
  The two-year bond CA2YT=RR rose 8 Canadian cents higher
to yield 1.647 percent, while the 10-year bond CA10YT=RR
climbed 54 Canadian cents to yield 3.190 percent. Canadian
government bonds put in a mixed performance against their U.S.
 (Reporting by Ka Yan Ng; editing by Peter Galloway)

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