CANADA FX DEBT-C$ retreats as M&A flows, U.S. fiscal deal eyed

Tue Dec 18, 2012 5:05pm EST

By Solarina Ho
    TORONTO, Dec 18 (Reuters) - The Canadian dollar softened
against the U.S. dollar on Tuesday as investors continued to
position around the uncertain U.S. fiscal budget negotiations.
    The Canadian dollar's weakness was counter to higher equity
markets. It also added to losses by commodity-linked currencies,
which dipped early after the Reserve Bank of Australia said
mining investment had likely peaked.
    Global stocks rose to their highest levels since September
on optimism that U.S. lawmakers will reach a deal on the U.S.
fiscal crisis, but investors appeared reluctant to make big
Canadian dollar bets one way or another. 
    "Some resolution to that in the short term should be
positive equities, which should be positive risk, which should
be positive Canada. So we're waiting to see that. It's a matter
of how much of that is built in," said Darcy Browne, managing
director at Capital Markets Trading, CIBC.
    "People were expecting more things out of Canada at the
moment and it's just not showing itself."
    The Canadian dollar stood at C$0.9857 versus the
U.S. dollar, or $1.0145, slightly below Monday's North American
close at C$0.9837 versus the U.S. dollar, or $1.0166. Analysts
said the currency remained range-bound, trading between C$0.9832
and C$0.9859 throughout the session. 
    Currency strategists are also eyeing significant financial
flows expected on the back of several deals between Canadian and
foreign companies.
    "Everyone's waiting for this M&A flow to play itself out. It
should be Canada positive," said Browne, but added: "Canada at
these levels is big-picture expensive." 
    It was weaker across the board against other major
currencies, except the Japanese yen and its fellow
commodities-linked currencies, the Australian and New Zealand
dollars.
    Australia's central bank said it decided to cut interest
rates this month rather than wait because it saw further
evidence that the peak in the mining investment boom was near,
while the non-resource sector showed no signs of picking up.
 
    "All the other commodity currencies are also slightly weaker
partially on the RBA's minutes, which highlighted that the
investment boom in the mining industry is likely peaking, as
well as a focus on employment, so that seems to be pulling down
commodity currencies a little bit," said Camilla Sutton, chief
currency strategist at Scotiabank.
    Canadian government bond prices were mixed, slipping across
the long end. The two-year bond was flat with a yield
of 1.153 percent, while the benchmark 10-year bond 
shed 18 Canadian cents to yield 1.843 percent.
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