CANADA FX DEBT-C$ near 2-month high on trade data, M&A deals

Tue Dec 11, 2012 5:28pm EST

* C$ at C$0.9862 vs US$, or $1.0140
    * C$ touches C$0.9858, strongest since Oct. 19
    * Canada posts narrower-than-expected trade deficit
    * Bond prices ease across the curve

    By Solarina Ho
    TORONTO, Dec 11 (Reuters) - The Canadian dollar ended firmer
against the U.S. currency for the sixth straight session on
Tuesday after briefly touching its strongest level in nearly two
months following data that showed Canada's trade deficit shrank
unexpectedly in October.
    Canada's trade deficit was C$169 million ($171 million) in
October from a revised C$1.01 billion deficit in September as
imports fell 1.2 percent, while higher prices and volumes drove
up exports 1.0 percent. Analysts expected a shortfall of C$1.2
billion. 
    "The headline was a little better than the components. I
think the market shrugged it off pretty quickly. I don't know
that it was enough news to make you want to run out and buy the
Canadian dollar," said Darcy Browne, managing director of
Capital Markets Trading at CIBC World Markets.
    Imports fell to a 15-month low, an indication the economy is
still struggling to cope with weak foreign markets and other
challenges.
    "Whether the trade deficit remains low would be more a
function of the recovery in the U.S. and the global economy,"
said Paul Ferley, assistant chief economist at Royal Bank of
Canada.
    The numbers contrasted with U.S. trade data, which showed a
wider deficit in October. Exports suffered their biggest drop in
nearly four years, a sign slowing global demand was spilling 
into the already struggling U.S. economy. 
    "I think the impact (on the Canadian dollar) could be fairly
short-lived until we get further confirmation of indications of
growth bouncing back here in Canada for the final quarter of
this year," said Ferley.
    The Canadian dollar finished at C$0.9862 versus the
greenback, or $1.0140, slightly firmer than Monday's session
close of C$0.9870, or $1.0132.
    It touched a session high after the Canadian trade data was
released before paring gains. Canada's dollar hit C$0.9858, or
$1.0144, its strongest since Oct. 19, but was still stuck in a
narrow range between $0.9858 and $0.9880.
    The currency has made steady inroads against its U.S.
counterpart since Friday, when the Canadian government approved
two big international takeovers.
    It underperformed against most other major currencies,
however, including the euro, which rallied against the U.S.
dollar as surprisingly strong German economic sentiment and
optimism the United States will avoid a fiscal crisis encouraged
investors to broadly embrace risk.  
    The Canadian dollar did not react to Bank of Canada Governor
Mark Carney's first speech since his surprise appointment as
Bank of England governor. 
    Carney, who has signaled for months that the central bank's
next interest rate move will be an increase, said on Tuesday he
will not rush through any policy decisions before he leaves in
June to head the Bank of England. 
    Going forward, investors are focused on the Federal Reserve
meeting and "fiscal cliff" talks in the United States to avoid
$600 billion of spending cuts and tax increases set to begin in
the new year.
    When the Fed concludes its meeting on Wednesday, the central
bank is expected to extend its asset-purchase scheme and commit
to buy $45 billion of U.S. debt each month.
    "I think the market's just watching equities and all the
developments on the wires relating to the fiscal cliffs and as
the equities rally, the correlation still holds with the S&P and
the Canadian dollar," said Browne. He added that the next level
to watch for was around C$0.98.
    "Again, we're hitting technical targets for the Canadian
dollar and the S&P and we'll see if it has enough momentum to
push out through another leg. It's starting to shape up like it
might."
    Canadian government bond prices eased across the curve, with
the two-year bond lost 3.5 Canadian cents to yield
1.076 percent, and the benchmark 10-year bond gave
back 27 Canadian cents to yield 1.730 percent.
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