December 31, 2009 / 9:40 PM / 10 years ago

CANADA FX DEBT-C$ ends higher, posts 16 pct rise for 2009

 * C$ rises to 95.51 U.S. cents
 * Canadian dollar ends year 15.9 percent higher
 * Bond prices fall as claims brighten U.S. jobs outlook
 (Writes through)
 By Ka Yan Ng
 TORONTO, Dec 31 (Reuters) - The Canadian dollar finished
the year on a firm note against the U.S. greenback on Thursday,
supported by stronger oil prices in light trade, and market
players predicted momentum for the currency in the new year.
 The Canadian dollar finished higher for a second straight
month, ending at C$1.0510 to the U.S. dollar, or 95.15 U.S.
cents. That is up from C$1.0553 to the U.S. dollar, or 94.76
U.S. cents, at Wednesday's close.
 For the year, the currency is up 15.9 percent versus the
U.S. dollar, rebounding from its 18.6 percent drop in 2008,
which was its worst showing against the U.S. dollar in any year
since at least 1950.
 Many currency players say the Canadian dollar is poised to
climb further early in the new year alongside an improving
economy and global outlook, as well as commodity price gains.
 Scotia Capital is among foreign exchanges desks that expect
the Canadian dollar will reach par with the U.S. dollar in
2010. The Canadian dollar made a run to parity this year,
reaching as high as 97.97 U.S. cents, during its long march
from its March low of 79.28 U.S. cents. The last time it hit
par with the greenback was mid 2008.
 "The fundamentals in Canada are strong. Sentiment is
bullish Canada, and on a relative basis, Canada should do very
well with stronger commodity prices and ongoing U.S. economic
recovery," said Camilla Sutton, currency strategist at Scotia
Capital.
 On Thursday, the currency rebounded after it fell briefly
on data that showed weekly U.S. jobless claims hit a 17-month
low. [ID:nOAT004412]
 It dropped to 95.02 U.S. cents after the claims data, which
lifted hopes for U.S. economic recovery and gave the greenback
a shot in the arm. But the Canadian dollar snapped back in a
thin market, helped by an oil price that held above $79 a
barrel, and rose to a session high of 95.64 U.S. cents.
 "There's no point seeking a rational explanation on Dec. 31
when the market is this thin," said Jack Spitz, managing
director of foreign exchange at National Bank Financial.
 "The movements today are not necessarily going to be
indicative of any longer-term influence."
 Next week's Canadian and U.S. job statistics for December
will be key, with market players expecting further evidence of
a healing economy.
 BONDS FALL
 The U.S. claims data on Thursday helped to send Canadian
bond prices lower across the board, following their U.S.
counterparts.
 The data prompted a rethink of next week's U.S. nonfarm
payrolls release, though it was tempered by revised data
showing business activity in the U.S. Midwest was softer than
first thought. [ID:nN31250364]
 "The jobless claims have really begun to suggest that we
should realistically at least consider the possibility of a
positive payrolls next week. Canada has behaved much more
cautiously today," said Eric Lascelles, chief economics and
rates strategist at TD Securities.
 He said supply will likely be a concern for the U.S. market
next year, but to a much lesser degree in  Canada, which has
lower relative deficit- and debt-to-GDP ratios.
 "Increasingly the market is agreeing that the recovery is
for real and so it's looking for something new to worry about.
The obvious concern going forward is going to be the bond
supply story, deficits and how these get managed," Lascelles
said.
 "Canada is just incredibly superior in terms of its bond
issuance needs. They're just not nearly as dire, and as a
result the market isn't insisting on the same premium in Canada
that the U.S. is being forced to pay right now."
 The two-year Canadian government bond CA2YT=RR was off 10
Canadian cents at C$99.57 to yield 1.480 percent, while the
10-year bond CA10YT=RR fell 6 Canadian cents to C$101.10 to
yield 3.611 percent.
 Canadian government bonds outperformed U.S. issues across
the curve, with the Canadian 10-year yield 23.2 basis points
below its U.S. counterpart, compared with 19 basis points the
previous session.
 Canadian markets will be closed on Friday, Jan. 1.
 (Reporting by Ka Yan Ng; Editing by Peter Galloway)


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