CANADA FX DEBT-C$ falls after Liberals say won't support gov't

Tue Sep 1, 2009 2:53pm EDT
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 * Canada Liberals will vote against government
 * C$ hit intraday low after Liberal leader spoke
 * Bonds stronger as stocks weaken; eye on Friday jobs data
 (Adds details)
 By Ka Yan Ng
 TORONTO, Sept 1 (Reuters) - Canada's dollar weakened versus
a broadly stronger U.S. currency on Tuesday, and was hit with
additional pressure stemming from the threat of a federal
 The Canadian unit dropped to its lowest level of the day at
C$1.1068 to the U.S. dollar, or 90.35 U.S. cents, after the
country's official opposition Liberal Party said it will no
longer support the minority Conservative government of Prime
Minister Stephen Harper. [ID:nN01496127]
 Political uncertainty tends to put pressure on a country's
 The unexpected news added to the Canadian currency's losses
amid a generally stronger U.S. dollar and choppy trading
conditions brought on partly by the lower liquidity of the late
summer period.
 At 2:20 p.m. (1820 GMT), the Canadian dollar was at
C$1.1048 to the U.S. dollar, or 90.51 U.S. cents, down from
C$1.0950, or 91.32 U.S. cents, at Monday's close.
 "Generally speaking the rule of thumb is that the Canadian
dollar does tend to be a little more volatile during elections
simply because of some uncertainty over policy," said Doug
Porter, deputy chief economist at BMO Capital Markets.
 "But I think it's important to point out the fact that the
U.S. dollar is on a bit of tear today in any event, even before
this announcement and I think it just really compounds what had
already been an ugly backdrop for the Canadian dollar in any
 Investors concerned that stock prices have run too far
ahead of the economic recovery opted to pocket recent gains and
unload riskier assets, which helped lift the greenback's
appeal. The Canadian dollar completely lost gains amassed after
data showed the U.S. manufacturing sector grew in August.
 Toronto's main stock index .GSPTSE was down more than 1
percent in early afternoon as the index's financial group
weighed heavily after huge gains last week. Falling oil prices
also dragged down the resource-heavy index. [ID:nTOR004927]
 With no Canadian data due until the end of the week, the
currency's performance is expected to be influenced by the
direction in equities and price of oil.
 Friday's key jobs report is expected to show Canada shed
10,000 jobs in August, while the unemployment rate is pegged to
rise to 8.7 percent. U.S. employment data is also due on
 Canadian bond prices recouped early losses and moved higher
across the curve as the drop in equities sparked demand for
more secure assets such as government debt.
 But analysts noted price moves are likely to be limited
ahead of the key Canadian and U.S. jobs data on Friday.
 "Realistically we are sort of trapped in these ranges ahead
of the payrolls numbers on Friday in both countries," said Mark
Chandler, fixed income strategist at RBC Capital Markets.
 Domestic bond prices held steady after the political
 The two-year bond CA2YT=RR was up 5 Canadian cents at
C$99.50 to yield 1.255 percent, while the 10-year bond
CA10YT=RR rose 13 Canadian cents to C$103.25 to yield 3.355
 The 30-year bond CA30YT=RR advanced 15 Canadian cents to
C$118.90 to yield 3.881 percent.
 Earlier, price guidance was set on Canada's $3 billion
five-year global note. Chandler said there appeared to be
strong demand for the offering. [ID:nN01482265]
 Canada said last week it planned to issue a U.S. dollar
bond for the first time in a decade to meet obligations made to
the International Monetary Fund. [ID:nN28386471]
 (Additional reporting by Jennifer Kwan and Frank Pingue;
Editing by Jeffrey Hodgson)