CANADA FX DEBT-C$ perks up after dovish Bernanke comments

Wed Feb 24, 2010 4:57pm EST Related News CANADA FX DEBT-C$ hits one-week low; commodities, US data weighTue, Feb 23 2010CANADA FX DEBT-Canada dollar dips with commodities mixedMon, Feb 22 2010CANADA FX DEBT-C$ hits Feb high after U.S. data calms rate fearsFri, Feb 19 2010CANADA FX DEBT-Canadian dollar pares loss after U.S. dataFri, Feb 19 2010CANADA FX DEBT-C$ shines on inflation data, foreign investmentThu, Feb 18 2010

* C$ up at 94.88 U.S. cents * Bernanke signals U.S. rates to remain low * U.S. home sales drop to record low in January * Bonds lower, Canada underperforms U.S. (Updates to close, adds details, quotes) By Claire Sibonney TORONTO, Feb 24 (Reuters) - The Canadian dollar gainedslightly against the U.S. dollar on Wednesday as investorappetite for riskier assets was whetted by remarks from U.S.Federal Reserve Chairman Ben Bernanke, who reaffirmed his vowto keep interest rates low. Bernanke told Congress that a weak job market and lowinflation would likely allow the U.S. central bank to keepinterest rates at very low levels for "an extended period".[ID:nN23153536] But the Canadian currency hit some bumps earlier in the dayafter dismal data showed sales of newly built U.S.single-family homes hit their lowest level since recordsstarted in January 1963, hinting at possible troubles for thefragile U.S. housing market"s recovery. [ID:nN24373288] "It"s been kind of a mixed bag today and on balanced wehaven"t really moved that much from opening levels," saidGeorge Davis, chief technical strategist at RBC CapitalMarkets. "Bernanke went out of his way to emphasize that there is nochange to the Fed"s monetary policy despite what people mayhave been thinking from last week"s increase in the discountrate... (and) that basically settled the markets down." U.S. stocks and oil prices also turned higher as investorswelcomed the promise of more cheap money. [.N] [O/R] "The risk trade is tentatively back on. Equities are up,various other asset classes such as commodities are edginghigher and the Canadian dollar normally enjoys an upward tiltwhen that happens," said Eric Lascelles, chief economics andrates strategist at TD Securities. The Canadian dollar closed at C$1.0540 to the U.S. dollar,or 94.88 U.S. cents, slightly up from Tuesday"s close atC$1.0566 to the U.S. dollar, or 94.64 U.S. cents. EQUITIES UP, BONDS DOWN With U.S. equity markets higher, Canadian bond prices werelower across the curve. The two-year Canadian government bond CA2YT=RR fell 2Canadian cents to C$100.315 to yield 1.340 percent, while the10-year bond CA10YT=RR lost 13 Canadian cents to C$102.370 toyield 3.448 percent. Canadian bonds also lagged their U.S. Treasurycounterparts, with the difference between 10-year yieldsnarrowing about 1.6 basis points to 24.1. "I think part of the story is from a technical perspectivethe U.S. market had seemed quite cheap and there was quite agreat appetite to buy U.S. bonds to resolve that issue,"Lascelles said. "Whereas in Canada the perception was that there was nevermuch of an outlier, and it"s still the case that Canadian bondsare roughly fair valued and just haven"t fully participated inthe recent movement." Also souring market sentiment, Canada"s auction of 30-yearreal return bonds met with weaker demand than usual as marginalinvestors shied away from lower-yielding but saferinflation-protected government debt. [ID:nN2499749] "It seems as though the real return bond market is nolonger the one-way ticket to riches that it was, going back afew months ago," Lascelles said. (Reporting by Claire Sibonney; editing by Peter Galloway)

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