CANADA FX DEBT-C$ strengthens as U.S. data supports

Wed Feb 27, 2013 5:24pm EST

* C$ at C$1.0230 vs US$, or 97.75 U.S. cents
    * U.S. housing, durable goods data lifts sentiment
    * Traders positioning due to CNOOC acquisition of Nexen
    * Next BoC rate hike seen Q1 2014-Reuters poll

    By Solarina Ho
    TORONTO, Feb 27 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Wednesday as U.S. economic data
bolstered investor sentiment which had been battered recently by
the sluggish domestic economy and renewed worries about Europe.
    The currency tracked Wall Street equity markets, which
rallied as Federal Reserve Chairman Ben Bernanke reaffirmed his
strong support for the U.S. central bank's stimulus efforts.
  
    Data on U.S. housing and durable goods also buoyed markets.
 
    "There has been a general trend away from the U.S. dollar
throughout the North American session, much of it has to do with
the pickup in the equity markets," said Jack Spitz, managing
director of foreign exchange at National Bank Financial,
attributing the strength the data and comments by the central
bank chiefs.
    European Central Bank President Mario Draghi said the ECB
was not about to remove the crisis measures it deployed to help
the ailing euro zone economy. 
    "The market seems to be adapting to Italy to a certain
degree. the lower volatility has contributed to U.S. dollar
weakness and by extension, Canadian dollar strength," said
Spitz.
    Worries that an uncertain outcome from the election in
Italy, the euro zone's third-largest economy, will fragment the
government and endanger the country's current economic reform
program, were soothed following solid demand at an auction of
Italian government debt.
    The Canadian dollar closed the North American
session at C$1.0230 against the greenback, or 97.75 U.S. cents,
stronger than Tuesday's North American close at C$1.0264, or
97.43 U.S. cents.
    The loonie had experienced seven straight sessions of
weakness on the heels of unexpectedly weak domestic data before
eking out a negligible gain on Tuesday.
    "Without the good U.S. news, I think people would be more
concerned about how Canada would fare," said Don Mikolich,
executive director, foreign exchange sales At CIBC World
Markets.
    The recent weak numbers have pushed expectations for the
Bank of Canada's next interest rate hike all the way to the
first quarter of 2014, according to a Reuters poll on Wednesday.
 
    The Canadian dollar was mixed against other currencies,
outperforming the Australian dollar, but underperforming the
euro.
    National Bank's Spitz noted there was also some positioning
ahead of what could be positive and potentially significant flow
for Canada due to the CNOOC's Ltd acquisition of Nexen
Inc and the delisting of Nexen stock. 
    There is speculation some Canadian investors will convert
their U.S. dollar proceeds from the takeover into Canadian
dollars.
    Traders are now looking ahead to fourth-quarter Canadian GDP
data on Friday. 
    "GDP suggests a bid to USD/CAD leading into the data because
the data is universally expected to be soft. But that's more or
less likely already discounted into the price of USD/CAD," said
Spitz.
    Government bond prices were mixed. The 2-year bond
 climbed 1.5 Canadian cents to yield 1.003 percent.
The benchmark 10-year bond was off 5 Canadian cents
to yield 1.867 percent.