CANADA FX DEBT-C$ gains in holiday-thinned trade

Mon May 28, 2012 4:45pm EDT

* C$ ends at C$1.0238 vs US$, or 97.68 U.S. cents
    * Outperforms most G10 currency peers
    * Bond prices fall across the curve

    By Jennifer Kwan	
    TORONTO, May 28 (Reuters) - Canada's dollar climbed against
its U.S. counterpart on Monday, recovering from a
four-and-a-half month low hit in the previous session, as Greek
polls showed growing support for pro-bailout parties.	
    Global share markets recovered overnight from steep falls
last week, when investors fled to the safety of the U.S. dollar
on mounting concerns about Greece, Spain's banking sector, and a
lack of immediate policy responses from European leaders.
 	
    "The positive news out of Europe caused a bit of demand for
the Canadian dollar and other risk-based assets," said Blake
Jespersen, a managing director of foreign exchange sales at BMO
Capital Markets.	
    Greek opinion polls pointed to gains for the conservative
New Democracy party in the June 17 election, making it more
likely the next Greek government will stick to bailout terms
agreed with the European Union and the International Monetary
Fund, enabling Greece to stay in the euro.    	
    "The pro-bailout party is gaining traction and is leading in
the polls so the market viewed that as a positive," said
Jespersen.	
    The Canadian dollar ended at C$1.0238 versus the
U.S. dollar, or 97.68 U.S. cents, stronger than Friday's North
American session close at C$1.0295 against the U.S. dollar, or
97.13 U.S. cents.	
    The Canadian dollar outperformed many of its G10 currency
peers, including the euro and Japanese yen. It underperformed
its commodity-linked cousins, the New Zealand and Australian
dollars.	
    "The market has decided to stop catastrophizing Greece ...
and the market is taking that as a catalyst perhaps to start
pulling back on its extreme long (U.S.) dollar positioning,"
said Jack Spitz, managing director of foreign exchange at
National Bank Financial.	
    But analysts said trading was subdued because of the long
U.S. holiday weekend, with U.S. financial markets closed on
Monday for the Memorial Day holiday.	
    Later in the week U.S. employment and housing data, Canadian
growth numbers, and an Irish vote on the European Union's new
fiscal treaty will provide further direction.	
    "It's been a very very quiet day and very little flow to
speak of given the U.S. holiday. So a lot of the large clients
have chosen to stay out of the market today given the thin
liquidity," said BMO's Jespersen.	
    Jespersen sees the currency stuck in a range of about
C$1.0220 to C$1.03 against the greenback.	
    Canadian government bond prices edged lower across the curve
with the two-year bond down 4 Canadian cents to yield
1.093 percent, while the benchmark 10-year bond was
off by 40 Canadian cents to yield 1.843 percent.
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