CANADA FX DEBT-C$ rebounds after G7 remarks spark rally

Tue Feb 12, 2013 4:47pm EST

* C$ ends at C$1.0027 vs US$, or 99.73 U.S. cents
    * Currency markets volatile following G7 comments
    * Nexen deal approval provides C$ support
    * BoC's Carney testifies in parliament; stays the course

    By Claire Sibonney
    TORONTO, Feb 12 (Reuters) - The Canadian dollar ended
stronger against its U.S. counterpart on Tuesday, reversing
earlier losses as it tracked volatile moves in global currency
markets following comments by the Group of Seven wealthy
nations.
    The currency was chasing a bigger move in the Japanese yen,
which rebounded from recent multi-year lows after a G7 statement
urged countries to refrain from competitive devaluations, saying
the group remained committed to "market-determined" exchange
rates. 
    This was in reaction to weeks of concern that the new
Japanese government's push on its central bank for a looser
monetary policy, which has weakened the yen, could trigger
far-reaching currency wars.  
    "We've seen a great deal of volatility in FX just given all
of these contradictory, confusing messages coming out of the
G7/G8/G20 ... contrary to their attempt to try and reduce
volatility and provide more clarity in FX markets. They've
managed to just complicate everything," said David Tulk, chief
Canada macro strategist at TD Securities.
    "The Canadian dollar is appreciating on the back of that ...
on the back of the U.S. dollar weakening," he said.
    The currency ended the North American session at
C$1.0027 versus the U.S. dollar, or 99.73 U.S. cents, firmer
than Monday's close of C$1.0043, or 99.57 U.S. cents.
    The G7 comments overshadowed the impact of testimony by Bank
of Canada Governor Mark Carney to a Canadian parliamentary
committee in which he reiterated the central bank's view that an
interest rate increase is less imminent. 
    Carney, who is changing jobs and will become governor of the
Bank of England in July, did say the G7 must forcefully press
major emerging economies at this weekend's G20 meetings to adopt
flexible foreign exchange rates.
    He also said it was critical that no G7 members use monetary
policy to target exchange rates. 
    On the domestic front, Carney said a weak jobs market is a
factor behind Canada's decision to keep interest rates low,
describing the country's 7 percent jobless rate as undesirably
high. 
    "They pretty much rehashed the MPR (Monetary Policy Report)
line for line and did very little to ... illuminate anything too
interesting as to the outlook for monetary policy in Canada," 
Tulk said.
    Matt Perrier, managing director of foreign exchange sales at
BMO Capital Markets, noted that the Canadian dollar also got
some modest support from news that U.S. regulators have approved
the $15.1 billion takeover of Canadian oil and gas company Nexen
Inc by China's state-owned CNOOC Ltd.
 
    "The Canadian dollar seemed to strengthen a little bit on
the announcement ... but it's a U.S. dollar deal and I would
guess that any FX will be a derivative of Canadian-dollar
holders of the stock that don't want to hold U.S. dollars," he
said.
    Perrier noted near-term Canadian-dollar resistance at the
200-day moving average near C$0.9990 toward parity with the
greenback, and support around C$1.01.
    The Canadian dollar has struggled in the wake of last
Friday's reports that showed surprise job losses in January and
lower-than-expected housing starts. It was still not far off
two-week lows against the greenback on Tuesday. 
    With the exception of sterling, Canada was mostly
weaker against other major currencies.
    Canadian government bonds drifted lower across the curve,
with the price of the two-year bond down almost 1
Canadian cent to yield 1.120 percent and the benchmark 10-year
bond down 20 Canadian cents, yielding 1.998 percent.
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