Canadian dollar rises with North American tide

Tue Apr 1, 2008 5:06pm EDT
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 By Frank Pingue
 TORONTO, April 1 (Reuters) - The Canadian dollar closed
higher versus a rallying U.S. dollar on Tuesday as writedowns
by big European banks put North American currencies back in
vogue ahead of key data due later this week.
 Canadian bond prices ended flat across the curve as plans
by financial companies to raise capital, viewed as a possible
sign that the worst of the credit crisis may be over, sapped
appetite for more secure assets like government debt.
 The Canadian dollar closed at US$1.0217 to the U.S. dollar,
or 97.88 U.S. cents, up from C$1.0265 to the U.S. dollar, or
97.42 U.S. cents, at Monday's close.
 It was a sudden turnaround for the Canadian dollar, which
closed the previous session at its lowest level in more than
two months because of weaker oil prices and nagging concerns
about a weak U.S. economy.
 But news that Swiss bank UBS UBSN.VX and Deutsche Bank
took a combined $23 billion hit on their risky assets supported
the idea that the credit market problems are global and sparked
buying of North American currencies.
 "I think it's been more of a U.S.-dollar-based move as
being the primary catalyst," said George Davis, chief technical
strategist at RBC Capital Markets.
 "And I think in a secondary fashion we've seen the equity
markets do quite well today ... and I think that has allowed
levels of risk aversion to decrease and that's generally a
positive for the Canadian dollar as well."
 North American equity markets rallied, led by a 391-point
gain on the Dow Jones industrial average .DJI, after Lehman
Brothers Holdings Inc's LEH.N decision to bolster its balance
sheet calmed worries about the financial sector's stability.
 The events overshadowed data released early in the session
that showed Canadian producer prices rose a
weaker-than-expected 0.1 percent in February.
 The Canadian dollar eased slightly after the data, but its
move was limited as investors were looking ahead to key March
employment data for Canada and the United States due out on
 The market will also look to see if Bank of Canada Senior
Deputy Governor Paul Jenkins veers from the bleak statement the
bank issued last month when he delivers a speech on "Trends and
challenges in the global economy and what they mean for Canada
and Ontario" in London, Ontario, on Wednesday morning.
 Canadian bond prices were flat as news that Lehman Brothers
said it would offer $4 billion worth of preferred convertible
stock lightened investor appetite for government debt.
 Sal Guatieri, senior economist at BMO Capital Markets, said
a sense that banks' capital positions are in better shape after
the Lehman news was the key factor behind lower bond prices.
 "And strong equity markets are sucking a lot of money out
of the bond market and the government market in particular,"
Guatieri added.
 But Guatieri also said bond markets could rally later this
week if the job reports, mainly the U.S. report, disappoint.
 The two-year bond fell 2 Canadian cent to C$102.36 to yield
2.781 percent. The 10-year bond rose 3 Canadian cents to
C$103.40 to yield 3.561 percent.
 The yield spread between the two- and 10-year bonds was
78.0 basis points, down from 81.1 points at the previous
 The 30-year bond rose 7 Canadian cents to C$116.65 to yield
4.024 percent. In the United States, the 30-year Treasury
yielded 4.402 percent.
 The three-month when-issued T-bill yielded 2.03 percent, up
from 1.89 percent at the previous close.
 (Editing by Peter Galloway)