December 23, 2010 / 9:40 PM / in 10 years

CANADA FX DEBT-C$ rallies on bullish sentiment, oil price

 * C$ closes at 99.12 U.S. cents
 * Hits near 1-week high of 99.30 U.S. cents
 * Bond prices lower across curve
 (Updates to close, adds details, quotes)
 By Claire Sibonney
 TORONTO, Dec 23 (Reuters) - The Canadian dollar climbed
against the greenback for a second day on Thursday in thin
trade, boosted by bullish market sentiment and oil's surge to
its highest price since the 2008 financial crisis.
 Crude oil hit more than a two-year high above $91 a barrel
propelled by more evidence the U.S. economy is strengthening,
including a jump in monthly durable goods orders and consumer
spending. [O/R] [ID:nN23199992]
 While North American equities were relatively flat, they
were hovering near peaks not seen since the collapse of Lehman
Brothers. [.N] [.TO]
 Canadian data also gave some mild support to the currency
as the economy grew 0.2 percent in October after a brief
downturn in September, but the figure was below analysts'
expectations and some of the details were disappointing.
 "We're starting to get some indications that the Canadian
economy did hit a bit of a soft patch going into Q4, so that's
really not much of a reason for the Canadian dollar to rally,
but again it's not enough of a reason for people to get all
that fretful about the Canadian dollar either," said David
Watt, senior fixed income and currency strategist at RBC
Capital Markets.
 "The simplest explanations are sentiment is overall rather
positive on markets right now and oil prices are going up."
 The Canadian currency CAD=D4 closed the North American
session at C$1.0089 to the U.S. dollar, or 99.12 U.S. cents, up
from Wednesday's finish of C$1.0142 to the U.S. dollar, or
98.60 U.S. cents.
 Earlier, it touched as high as C$1.0070 to the greenback,
or 99.30 U.S. cents, its strongest level in nearly a week.
 Market players noted that given little liquidity before
Christmas and New Year holidays, the currency was being driven
more by flows from orders going through.
 "Markets are definitely choppy to lead us out of the
month," said C.J. Gavsie, managing director of foreign exchange
sales at BMO Capital Markets. "We believe that the markets will
still be very sharp and jagged into the close of next week, as
more investors rather than corporates close out their positions
at year-end."
 RBC's Watt described the day's market action as "lumpy."
 "At points in time you get orders that go into the market
and since the market is relatively thin that tends to have a
bigger footprint  ... when in normal times it would probably go
through without anybody noticing."
 Canadian bond prices were mildly lower given the fairly
positive economic data, tracking U.S. Treasuries as dealers
prepared for new inventory next week. [US/]
 The two-year bond CA2YT=RR was down 13 Canadian cents to
yield 1.696 percent, while the 10-year bond CA10YT=RR slipped
21 Canadian cents to yield 3.184 percent.
 In an interview published on Thursday, Finance Minister Jim
Flaherty told Reuters he took note of "great demand" for two
Canadian foreign-currency denominated bonds. [ID:nN23134240]
 (Reporting by Claire Sibonney; editing by Peter Galloway)

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