CANADA FX DEBT-C$ hits 1-month high, ekes gain before jobs data

Thu Dec 6, 2012 4:38pm EST

* C$ at C$0.9911 vs US$, or $1.0090 U.S. cents
    * Purchasing activity in Canada falls unexpectedly
    * Euro falls after bleak ECB comments
    * Canada expected to have added 10,000 jobs

    By Solarina Ho
    TORONTO, Dec 6 (Reuters) - The Canadian dollar finished
modestly firmer against the U.S. dollar on Thursday, paring
gains after briefly touching a one-month high, as investors
turned their attention to employment data from Canada and the
United States expected on Friday.
    The currency crept to its strongest level since early
November in late morning trade, extending gains made over the
last two days after the Bank of Canada kept its bias towards
future rate hikes earlier in the week.
    Canada's central bank was unwavering in its view that it may
need to raise interest rates, not cut them, even as the
country's economy shows signs of slowing. 
    The slowing growth was reaffirmed after data showed
purchasing activity in Canada fell in November and building
permits data showed the value of residential permits  -- a
steadier measure than non-residential permits -- fell for the
third time in four months.  
     The Canadian dollar finished the North American
session at C$0.9911, or $1.0090 U.S. cents, slightly stronger
than Wednesday's session close of C$0.9917, or $1.0084.
    The currency, which has been trading between C$0.9962 and
0.9906 for the last two weeks, briefly broke through C$0.9900.
It touched C$0.9892 vs the U.S. dollar, or $1.0318, its
strongest level since Nov. 7.
    "Overall, it still feels like the market is unsure in which
direction to take USD/CAD," said Gareth Sylvester, director at
Klarity FX.    
    The Canadian dollar's performance was mixed against a basket
of other major currencies. It underperformed its fellow
commodities-linked Australian and New Zealand dollars, but
outperformed the euro, where it hit its strongest level in more
than a week.
    The euro was on track for its sharpest drop against the U.S.
dollar in a month after comments from European Central Bank
chief Mario Draghi, a downgrade to the region's growth and
inflation forecasts boosted expectations of an interest rate
cut. 
    The ECB kept interest rates on hold at a record low 0.75
percent as expected and predicted the euro zone economy would
shrink again in 2013. 
    "It was more euro sell-off than anything else after the ECB
and Draghi comments," said Matt Perrier, director of foreign
exchange sales at BMO Capital Markets.
    "A part from those moves, (the Canadian dollar) settled back
into the middle of the range there and quieted down quite
significantly since London packed things up for the day."
    Many analysts attribute the recent limited moves in Canada's
dollar to uncertainty over whether U.S. lawmakers can agree on a
fiscal plan to avert $600 billion in tax hikes and spending cuts
set to begin next year. If left unresolved, economists fear the
United States could go into recession.
    "I think the broader financial markets are taking their
trading cues from that event risk," said Sylvester.
    "If we get a resolution to the U.S. 'fiscal cliff' then that
might be what introduces some confidence into equity markets.
It's been such a close correlation between equity markets and
the U.S. dollar."
    Looking ahead, markets are also focusing on Friday's
November employment reports from both Canada and the United
States. Economists expect the United States to have added 93,000
jobs and Canada to have added 10,000 jobs. 
 
    Canadian bond prices were mixed, with the two-year bond
 rising half a Canadian cent to yield 1.041 percent,
and the benchmark 10-year bond down 3 Canadian cents
to yield 1.688 percent.
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