CANADA FX DEBT-C$ slides vs euro, soars to 2-1/2-year high vs yen

Fri Jan 11, 2013 5:25pm EST

* C$ flat vs US$ at C$0.9844, or $1.0158
    * C$ ends week up 0.3 pct vs US$
    * C$ falls to 2-week low against euro
    * C$ hits highest level vs yen since May 2010
    * Bond prices rise, reversing earlier losses

    By Claire Sibonney
    TORONTO, Jan 11 (Reuters) - Canada's dollar ended steady
versus the greenback on Friday, but fell against the euro and
surged against the yen in volatile action spurred by contrasting
expectations of the courses to be plotted by the European and
Japanese central banks.
    Over the previous couple of sessions, the Canadian dollar
had rallied with the euro against its U.S. counterpart after
encouraging comments from European Central Bank President Mario
Draghi. Traders cited U.S. dollar short-covering ahead of the
weekend for its firmness against the Canadian dollar on Friday.
    "The market seems really trapped," said David Bradley,
director of foreign exchange trading at Scotiabank. "There's
lots of liquidity and it seems like there are big players
playing both sides of the range so it's preventing (the Canadian
dollar) from breaking out in one direction or another." 
    Bradley also noted U.S. dollar buying ahead of the
International Money Market close. "Canada's been very quiet.
It's really taken a backseat given all the volatility in some of
the other majors like the yen and the euro over the last couple
days."
    The Canadian dollar had showed some strength in early
trading, taking its cue from rallying global equities and
growth-related currencies a day after the ECB said that the euro
zone economy will recover in 2013 and gave no hint it would ease
monetary policy. 
    Meanwhile in Japan, Prime Minister Shinzo Abe made his
biggest push yet to make jobs growth part of the Bank of Japan's
mandate as his government approved $117 billion of spending to
revive the economy in the biggest stimulus since the financial
crisis. 
    Under intense pressure from Abe, the BoJ will likely adopt a
2 percent inflation target and consider easing monetary policy
again.
    The Canadian dollar hit an intraday low of C$1.3147 against
the euro, or 76.06 euro cents, its weakest level since
Dec. 31. 
    Against the yen, the currency touched 91.02 yen,
its strongest level since May 2010.
    The Canadian dollar ended the North American
session at C$0.9844 versus the U.S. dollar, or $1.0158, little
changed from Thursday's close of C$0.9845 versus its U.S.
counterpart, or $1.0157. It finished the week 0.3 percent
firmer.
    After breaking through near-term resistance around C$0.9820,
the currency hit an intraday high of C$0.9815, or $1.0188, its
loftiest level since Oct. 18. Bradley pointed to the next area
of major resistance as being around C$0.9865-70.
    Data on Friday that showed Canada and the United States
posted bigger-than-expected trade deficits had little impact.
  
    Investors received some mixed signals about future monetary
policy from a speech by the Bank of Canada's Senior Deputy
Governor Tiff Macklem late Thursday. 
    Macklem, who is considered the strongest candidate to be the
next governor of the central bank after Mark Carney leaves later
this year, said high household debt was stretching the Bank of
Canada's low interest rate strategy to the limit. But he also
said the Canadian economy will likely be more sluggish than
expected in the near term. 
    "It was an academic speech, so he has to give both sides of
the conversation," said David Tulk, chief Canada macro
strategist at TD Securities. "When he was talking about the
wider economic backdrop, at least in terms of the near term
outlook, it was still a little bit more cautious and again this
(Canadian) trade report reinforces that." 
    Canada's trade deficit unexpectedly jumped to C$1.96 billion
in November from C$552 million in October, marking the
fourth-largest trade deficit on record.
    Canadian bond prices reversed earlier losses, climbing
across the curve in choppy trading.
    The two-year bond was up 1 Canadian cent to yield
1.192 percent, while the benchmark 10-year bond 
gained 12 Canadian cents to yield 1.941 percent.
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