August 11, 2011 / 4:23 PM / in 9 years

CANADA FX DEBT-C$ rebounds with equities, but risks remain

   * C$ rises to C$0.9891 to the U.S. dollar, or $1.0110
 * Bond prices retreat on equity market rally
 (Updates to midday)
 By Ka Yan Ng
 TORONTO, Aug 11 (Reuters) - The Canadian dollar edged up
against the U.S. currency on Thursday as oil prices and equity
markets rebounded, though gains were moderate as concerns over
the European debt crisis and global economic growth weighed.
 Bond prices fell as equity markets were solidly higher.
 U.S. crude futures gained and the S&P 500 and Nasdaq rose
more than 3 percent by late morning. Toronto's main stock index
also climbed into positive territory after an early selloff.
 "Things have calmed down a little bit," said John Curran,
senior vice-president at CanadianForex.
 At noon (1600 GMT), the Canadian dollar CAD=D4 was at
C$0.9891 to the U.S. dollar, or $1.0110, up from Wednesday's
North American close at C$0.9948 to the U.S. dollar, or
Canada's two-year bond CA2YT=RR fell 14 Canadian cents to
yield 0.927 percent, while the 10-year bond CA10YT=RR sagged
70 Canadian cents to yield 2.408 percent.
 Curran said the Canadian dollar was still a choice currency
by sovereigns for reserves while healthy corporate demand was
also a supportive factor.
 But this was "balanced by the risk-off scenario and the
rate hike expectations, which have been lessened due to the
Fed's actions and recent poor Canadian data," he said.
 Slumping exports propelled Canada to a much larger trade
deficit than expected in June, data showed on Thursday, which
will likely slash second-quarter growth to well below already
modest predictions. [ID:nN1E77A0LU]
 The data followed Tuesday's dovish statement by the U.S.
Federal Reserve, which upped expectations the Bank of Canada
will keep its interest rates lower for longer, with markets
even betting on a rate cut by year-end. [ID:nN1E77915R]
 Canadian overnight index swaps, which are based on
expectations for the Bank of Canada's key policy rate, have
fully priced in odds of a 25 basis point rate cut later this
year on mounting fears of a global slowdown. BOCWATCH
 But strong U.S. jobs data on Thursday took some of the
focus away from renewed fears about the health of the euro zone
banking system. [MKTS/GLOB]
 "We have to see if the world can bring itself back from the
edge here, which I think we will be able to do," said Curran.
"I think we should level off with the risk factors."
 The Canadian dollar has managed to stay above parity with
the greenback since briefly dipping below a one-for-one footing
on Tuesday as worries intensified about the twin U.S. and
European debt crises.
 "Things usually overshoot in panic situations like we've
just had. That we haven't gone back (below parity) is a solid
positive for the Canadian dollar," said Curran. 
 (Reporting by Ka Yan Ng; editing by Rob Wilson)

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