CANADA FX DEBT-C$ ends stronger, helped by U.S. budget optimism

Mon Nov 19, 2012 4:34pm EST

* C$ ends at C$0.9966 to the U.S. dollar, or $1.0034
    * U.S. lawmakers offer resolution hope for fiscal cliff
    * C$ seen trading between C$0.9939 and C$1.0018
    * Bond yields rise

    By Alastair Sharp
    TORONTO, Nov 19 (Reuters) - Canada's dollar strengthened
against the greenback on Monday, touching its strongest level in
more than a week as hope that U.S. lawmakers would find a
resolution to the country's fiscal crunch helped lift riskier
assets.
    The Canadian currency tracked equity markets, which broadly
recovered from sharp losses last week amid signs the United
States will avert the $600 billion in automatic tax increases
and spending cuts set to start kicking in in January that could
send the world's largest economy and Canada's main trading
partner back into recession. 
    "The Canadian dollar, today at least, has hitched back onto
that risk sentiment wagon which was so familiar a few months
ago," said Greg Moore, a foreign exchange strategist at TD
Securities.
    The commodities-linked Canadian dollar was also helped by
firmer commodity prices, with oil, gold and copper all rising, 
partly on U.S. budget hopes.   
    "I think there is optimism in the market that the fiscal
cliff negotiations are proceeding well. So that's provided a
lift to markets," said Camilla Sutton, chief currency strategist
at Scotiabank.
    The Canadian dollar closed Monday's trading at
C$0.9966 to the U.S. dollar, or $1.0034, firmer than Friday's
North American finish at C$1.0010, or 99.90 U.S. cents.
    The currency was seen trading between C$0.9939, which is a
100-day moving average, and C$1.0018, said Sutton.
    The currency's performance was somewhat mixed against its
counterparts. It was stronger than the yen and British pound,
but underperformed its fellow resource-linked currencies, the
Australian and New Zealand dollars.
    Looking ahead, this week investors will be watching a
critical meeting of euro zone finance ministers for progress
towards an eventual resolution of Greece's debt crisis. 
    "There are plenty of reasons for risk to sell off again, one
of them being if Europe sounds like they're punting back a
decision on Greece," TD's Moore said.
    Federal Reserve Chairman Ben Bernanke is set to speak on
Tuesday, which could turn market focus toward Fed policy. 
    "I think over the last couple of weeks, the markets have had
tunnel vision on fiscal cliff issues," said Scotia's Sutton.
    "If the market sentiment is shifting for the fiscal cliff, I
think what it does is opens the opportunity for things like Fed
policy, which is U.S. dollar bearish, to come to the forefront."
    Trading is expected slow as the week progresses as well,
with U.S. traders celebrating Thanksgiving on Thursday.
    Prices for Canadian government debt were lower across the
curve, with the two-year bond shedding 5 Canadian
cents to yield 1.091 percent and the benchmark 10-year bond
 falling 34 Canadian cents to yield 1.732 percent.
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