CANADA FX DEBT-C$ buoyed by ECB talk, China data

Thu Jan 10, 2013 4:24pm EST

* C$ ends stronger at $0.9845 vs US$, or $1.0157
    * Bond prices ease, underperform Treasuries

    By Claire Sibonney
    TORONTO, Jan 10 (Reuters) - The Canadian dollar climbed to a
more than one-week high against the greenback on Thursday as
strong Chinese trade data boosted commodity-linked currencies,
while some encouraging remarks by the European Central Bank
added to pressure against the U.S. dollar.
    The euro zone economy will recover later in 2013 and there
are already some signs of stabilization, the European Central
Bank said on Thursday after it unanimously held interest rates
at a record low. 
    "There's been a fair bit of price action on the back of the
stop-loss buying of the euro and it comes at the expense of the
U.S. dollar and the Japanese yen," said Jack Spitz, managing
director of foreign exchange at National Bank Financial. 
    The euro catapulted to an 18-month high versus the yen and
hit a one-week peak against the U.S. and Canadian dollars after
the ECB gave no indication of cutting. 
    Meanwhile, the Canadian currency appeared to brush off
disappointing domestic indicators.
    Data on Thursday showed the value of building permits issued
in Canada during November tumbled to the lowest level since
January 2012 due mainly to a slowdown in housing and non-housing
construction in the most populous province, Ontario.
 
    "The huge miss on building permits this morning was swept up
in the fray," added Spitz. "It should have had more influence
than it did but it just happened to coincide with Draghi's press
conference so it was skimmed from an influence point of view."
    On the upside for Canada's resource-driven currency,
however, China surprised most observers by reporting its exports
had rebounded sharply in December to hit a seven-month high,
with imports growing at double the expected rate. 
    The Canadian dollar ended the North American
session at C$0.9845 versus its U.S. counterpart, or $1.0157,
compared with C$0.9877, or $1.0125 at Wednesday's close.
    Jeremy Stretch, head of currency strategy at CIBC World
Markets in London, noted some near-term resistance for the
Canadian dollar at the bottom of the recent range around
C$0.9820. Overall, the Canadian dollar was expected to remain
firm despite the fact that January has been negative for the
currency in seven of the last 10 years.
    Many analysts and market players expect the Canadian dollar
to keep climbing well into 2013.
    "The Canadian dollar is likely to grind higher over the
coming months due to diminishing risks of a European sovereign
debt meltdown, better than expected growth from China, a bullish
bias to domestic interest rates and a sense that the USA will
find a way to skirt around the debt ceiling issue," said Michael
O'Neill, vice president of FX trading at Jitneytrade.
    Investors will be paying close attention to Canadian trade
data for November on Friday and a speech late on Thursday by 
Tiff Macklem, a senior Bank of Canada official widely tipped to
replace the departing Governor Mark Carney.
    "His words are going to be forensically examined as markets
attempt to understand if and how he will be running policy if he
were to be the next governor and of course that's still an if
rather than a certainty," said CIBC's Stretch.
    Canadian bond prices eased across the curve, mostly
underperforming U.S. Treasuries. The two-year bond 
was off 4 Canadian cents to yield 1.186 percent, while the
benchmark 10-year bond was down 42 Canadian cents to
yield 1.953 percent.
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