REFILE-CANADA FX DEBT-C$ ends 7 straight gains, focus turns to fiscal talks

Thu Dec 13, 2012 5:11pm EST

* C$ closes at C$0.9848 vs US$ or $1.0154
    * Touches highest since Oct 18 at C$0.9825, or $1.0178
    * C$ hits 17-mth high vs yen
    * Bond prices mostly fall across curve

    By Solarina Ho
    TORONTO, Dec 13 (Reuters) - The Canadian dollar finished
little changed against its U.S. counterpart on Thursday,
retreating from a two-month high reached earlier in the session,
as U.S. fiscal worries weighed and investors booked some profits
following seven straight sessions of gains.
    The commodities-linked currency tracked resource prices,
which fell as worries over a lack of progress in fiscal talks
between Congress and the White House overshadowed improvements
in U.S. jobs data and retail sales.  
    The currency began its steady grind stronger against the
U.S. dollar last week with strong employment numbers from the
United States and Canada and with the Canadian government's
approval of two major international takeover deals.
 
    It touched C$0.9825 against the U.S. dollar, or $1.0178 on
Thursday, its best performance since Oct. 18, following
Wednesday's news the Federal Reserve would keep buying bonds.
    "It's really ridden that wave, albeit very slowly ... over
the course of this week," said Shaun Osborne, chief currency
strategist at TD Securities, noting the trading range was still
very narrow, despite some good flows.
    "I think with risk assets looking like they're taking some
profit after the Fed news yesterday, we have seen equity markets
kick back a little bit of the strength."
    The Fed mostly met market expectations by saying it would
keep buying $45 billion of government bonds each month after its
"Operation Twist" program expires, in addition to buying $40
billion a month in agency mortgage-backed securities.
 
    The Canadian dollar finished at C$0.9848 versus the U.S.
dollar, or $1.0154, little changed from Wednesday's North
American session finish of C$0.9847, or $1.0155.
    Canada's dollar's performance was somewhat mixed against
other major currencies. It touched its strongest level against
the Japanese yen since July 8, 2011. It underperformed
against the euro, where it touched a one-week low.
    Earlier in the session, the Canadian dollar held on to gains
following a slew of North American data, including rising new
home prices and record high personal debt in Canada.
  
    In the United States, retail sales rose in November in a
sign that steady job creation is adding momentum to consumer
spending. Producer prices fell more than
expected, according to a government report that showed little
inflation pressures in the economy. 
    Fewer Americans filing new unemployment benefit claims last
week indicated a steady healing in the labor market.
 
    Going forward, Osborne said the currency could inch toward
the C$0.9700 to C$0.9750 level.
    "That'd be a good level to get long U.S. dollars at that
point. We're looking for a bit of a sell-off in the Canadian
dollar early in the new year," said Osborne, noting that the
Bank of Canada's actions will be constrained by the Fed's
aggressive easing mode.
    Uncertainty over a resolution on the U.S. fiscal crisis will
also remain a key risk.
    "Very near term ... the Canadian dollar is vulnerable to
continued worries on the fiscal cliff front. So we could see a
temporary reprieve where investors get a little bit worried
about the situation, a little bit of uncertainty about how the
U.S. economy is going to start 2013," said Michael Gregory,
senior economist at BMO Capital Markets.
    Canadian government bond prices were lower across the curve,
with the two-year bond shedding 5 Canadian cents to
yield 1.119 percent and the benchmark 10-year bond 
retreated 43 Canadian cents to yield 1.806 percent.
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