CANADA FX DEBT-C$ extends gains, helped by China trade data

Wed Feb 12, 2014 4:21pm EST

* Canadian dollar at C$1.0997 or 90.93 U.S. cents
    * Bond prices mostly lower across the maturity curve


    By Leah Schnurr
    TORONTO, Feb 12 (Reuters) - The Canadian dollar firmed
modestly against the greenback on Wednesday, extending recent
gains after data from China showed surprisingly strong growth in
imports, hitting a six-month high in January, in the world's
second-largest economy. 
    While the currency strengthened through the C$1.10 barrier,
the gains were capped as analysts expressed some skepticism over
the reliability of the Chinese figures.
    Still, the robust trade performance tempered fears of a
deepening economic malaise in China. The currency of Canada, a
big resource producer, is often sensitive to economic data out
of China, a major consumer of commodities. 
    The Canadian dollar has strengthened in four of its last
five sessions, recouping losses as investors consolidate
positions after the currency hit a 4-1/2-year low at the end of
January.
    "It's been our view since the beginning of this month that
after such a massive move lower for the Canadian dollar through
January, a quiet month of February is a perfect environment for
a pullback," said Greg Moore, senior currency strategist at
Royal Bank of Canada in Toronto.
    The Canadian dollar is up about 1 percent against the U.S.
dollar for February so far after diving more than 4 percent in
January. 
    The Canadian dollar ended the North American
session at C$1.0997 to the greenback, or 90.93 U.S. cents,
stronger than Tuesday's close of C$1.1017, or 90.77 U.S. cents.
    Most analysts still expect more weakness is in store for the
loonie as it continues to be driven by a Bank of Canada stance
that is unlikely to lead to higher interest rates any time soon.
    "What we will find is that the Canadian dollar reprieve will
provide some U.S. dollar-buying opportunities at a much more
favorable level," said Dean Popplewell, chief currency
strategist at OANDA in Toronto. 
    "The Canadian dollar is really stuck in a four or five cent
contained range." 
    The release of the Canadian government's 2014-15 budget on
Tuesday, which put the country on course to balance its books in
2015 or even sooner, had little impact on the loonie. 
    The budget showed a smaller-than-expected deficit for the
2014-15 fiscal year and estimated a bigger surplus than
anticipated the following year, but analysts said the news had
largely been priced in by the currency market. 
    Canadian government bond prices were mostly lower across the
maturity curve, with the two-year off 4.4 Canadian
cents to yield 1.035 percent, and the benchmark 10-year
 down 21 Canadian cents to yield 2.487 percent.
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