CANADA FX DEBT-C$ soften as Cyprus deal pressures risk assets

Mon Mar 18, 2013 4:57pm EDT

* C$ at C$1.0223 vs US$, or 97.82 U.S. cents
    * Bailout plan for Cyprus will tax bank deposits
    * Foreigners acquire C$13.34 bln in Canadian securities in
Jan
    * Bond prices higher across curve

    By Solarina Ho
    TORONTO, March 18 (Reuters) - The Canadian dollar softened
against its U.S. counterpart on Monday as investors sold riskier
assets after news that a bailout plan for Cyprus that will tax
bank deposits in exchange for a 10 billion euro ($13 billion)
bailout.
    The weekend announcement broke with previous EU practice
that depositors' savings were sacrosanct. Cypriots emptied cash
machines, feeding worry about possible bank runs in larger
states that are possible bailout contenders. 
 
    The Canadian dollar's retreat was modest relative to the
overall tone of the market, analysts said, noting it pared
heavier overnight losses.
    "Maybe we're getting a bit of a safe haven bid on the back
of weakness in Europe ... and Canada is still seen as a AAA in a
relatively safe country. You saw that to some extent in the
capital flow numbers this morning," said Benjamin Reitzes,
senior economist and foreign exchange strategist at BMO Capital
Markets.
    Statistics Canada reported slightly better securities
transaction data, which saw foreigners acquire C$13.34 billion
($13.08 billion) of Canadian securities in January.
 
    "That may have given a little bit more additional impetus
for Canada to strengthen somewhat, but we still think in the
near term, the Canadian dollar still has room to weaken a little
bit further over the next month or two," said Reitzes.
    The Canadian dollar ended the North American
trading session trading at C$1.0223 against the greenback, or
97.82 U.S. cents, weaker than Friday's finish at C$1.0193, or
98.11 U.S. cents. It had touched C$1.0251, or 97.55 U.S. cents
earlier on Monday.
    "We saw some strong inflows in January. The numbers are not
usually anything that moves the market to any significant
degree, so I don't think it's anything that's probably going to
overshadow the broader focus on risk," said Shaun Osborne, chief
currency strategist at TD Securities.
    Osborne noted the stronger correlation between the Canadian
dollar and risk assets again.
    "Those correlations did really weaken off quite dramatically
at the start of the year. The focus was really on domestic
developments. But it's probably moving back toward a focus on
external issues as a potential driver for the Canadian dollar."
    The Canadian dollar was mixed against most major foreign
currencies, underperforming against its commodities-linked
counterparts of the New Zealand and Australian
dollars. It held firm against the British pound
.
    Canadian manufacturing sales, wholesale trade and retail
sales data are next on the radar and all three are expected to
be positive, said Reitzes.
    "But we've had continued downside surprises on Canadian
numbers, so until we see these positive numbers - I'll believe
when I see it," he added.
    The price of Canadian government debt was higher across the
curve, with the two-year bond up 1 Canadian cents to
yield 0.984 percent, while the benchmark 10-year bond
 climbed 29 Canadian cents to yield 1.864 percent.
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