CANADA FX DEBT-C$ strengthens on positive U.S. budget talks

Wed Nov 28, 2012 4:46pm EST

* C$ at $0.9919 vs US$, or $1.0082
    * Sentiment rises with U.S. fiscal cliff hopes
    * Focus on Canadian M&A deals
    * Bond prices rise across curve

    By Solarina Ho
    TORONTO, Nov 28 (Reuters) - The Canadian dollar firmed
against the U.S. dollar on Wednesday as market sentiment
improved on hopes that a deal can be reached on the U.S. "fiscal
cliff".
    President Barack Obama said he hopes he can reach agreement
with Congress before Christmas to shrink the U.S. budget deficit
and forge an agreement to avoid a package of tax increases and
spending cuts scheduled to kick in at the end of the year that
threaten a U.S. recession. 
    U.S. House Speaker John Boehner, an Ohio Republican, said he
is willing to put revenues on the table if accompanied by
spending cuts. 
    "Risk appetite is better. The fiscal cliff seems to be
moving toward a resolution," said Adam Button, currency analyst
at ForexLive in Montreal, who added that the optimism should
help the Canadian dollar strengthen through C$0.99, or $1.01, in
the near future.
    "The fuse my not be lit on the fiscal cliff in the way in
the way we thought it might be ... It's early on, admittedly,
but it looks at this point it could be a relatively painless
decision."
    The Canadian dollar finished the North American session at
C$0.9919 to the U.S. dollar, or $1.0082, stronger than Tuesday's
finish at C$0.9947, or $1.0053.
    Earlier in the session, the currency touched C$0.9962, its
weakest level this week against the greenback, before
strengthening. "That tells me there's a strong appetite to buy
Canadian dollars as we approach parity," Button said.
    The currency has been trading between C$0.9875 and C$1.0057
for more than a month.
    Canada's performance was mixed against other major
currencies on Wednesday. It outperformed the euro, but
underperformed the Australian dollar.
    "Canada still seems an okay story but there's uncertainty
around the U.S. 'fiscal cliff' (and there is) still uncertainty
around some of the big M&A deals, the Nexen and Progress deals,"
said Shane Enright, executive director of foreign exchange sales
at CIBC World Markets.
    China's state-owned CNOOC Ltd and its Canadian
takeover target Nexen Inc said on Tuesday they have
withdrawn and resubmitted an application for U.S. approval of
their $15.1 billion deal. 
    Meanwhile, Canada said it will update guidelines on foreign
investment and announce "in the near future" its verdict on the
Nexen deal and a bid by Malaysia's Petronas for
Progress Energy Resources Corp. 
    "(Nexen) is the major near-term catalyst for the Canadian
dollar. A positive ruling on Nexen would set the stage for
Canadian dollar strength," Button said.
    He noted also that U.S. economic data continues to improve.
"The holiday season looks like it's going to be solid and the
economy is picking up south of the border. That's number one for
the Canadian dollar."
    Prices for Canadian government debt were higher across the
curve, with the two-year bond up 1 Canadian cent to
yield 1.090 percent and the benchmark 10-year bond 
rising 12 Canadian cents to yield 1.716 percent.
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