CANADA FX DEBT-C$ slips as upcoming U.S. earnings breed caution

Tue Jan 8, 2013 4:21pm EST

* C$ at C$0.9867 vs US$, or $1.0135
    * U.S. earnings season, mixed European data breed caution
    * In quiet trade, France downgrade rumor weighs on currency

    By Alastair Sharp
    TORONTO, Jan 8 (Reuters) - The Canadian dollar weakened
slightly against its U.S. counterpart on Tuesday, as caution
reigned ahead of the North American earnings season.
    The currency appears unlikely to gain regardless of whether
U.S. corporates deliver stellar results or miss on muted
expectations in coming weeks.
    "While money may be leaving the U.S. markets, I don't think
it'll necessarily find Canada, giving our trade linkages, as a
particularly attractive destination," said Don Mikolich,
executive director for foreign exchange sales at CIBC World
Markets. 
    He said that the euro would likely benefit if the numbers
point to a faltering recovery, while robust earnings would still
find it difficult to push the Canadian dollar below C$0.98.
    The Canadian dollar ended the session trading at
C$0.9867 to the greenback, or $1.0135, compared with C$0.9857,
or $1.0145, at Monday's North American close.
    It had earlier weakened on speculation, later denied by
officials, that France's sovereign debt rating may get
downgraded. 
    "It's not the first time we hear these kind of rumors going
around, it's just that there isn't much for the market to focus
on at the moment," said Audrey Childe-Freeman, global head of
foreign exchange strategy at BMO Capital Markets in London.
    CIBC's Mikolich agreed. 
    "People are paying attention to some of the overseas news:
where Japan's monetary policy is heading is of some interest,
European news continues to trickle out here and there, but
nothing is the barn-burner item right now," he said.
    Business morale in the euro zone improved again in December,
but unemployment hit a record and households held back from
spending before Christmas, suggesting the bloc's emergence from
recession will be slow. 
    BMO's Childe-Freeman said that while Canada's domestic
outlook compares favorably to both the U.S. and Australian
economies, investors have chosen the Australian currency as a
growth proxy for its closer ties to the improving Chinese
market.
    She sees the Canadian currency trading between C$0.98 and
equal value to the U.S. dollar in the next couple of months,
notwithstanding an early return to the drama of U.S. fiscal
cliff and debt ceiling talks or signs that Canada's central bank
will hike rates sooner than expected.
    The two-year bond was up 8 Canadian cents to
yield 1.166 percent, while the benchmark 10-year bond
 rose 27 Canadian cents to yield 1.911 percent.
FILED UNDER:
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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