CANADA FX DEBT-C$ ekes out small gain in volatile session

Wed Apr 1, 2009 5:30pm EDT
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 * C$ stabilizes around C$1.26, hit 2-wk low overnight
 * BoC Governor Carney backs away from recovery forecast
 * Bonds end mostly higher
 (Updates to close)
 By Ka Yan Ng
 TORONTO, April 1 (Reuters) - The Canadian dollar CAD=
eked out a small gain against the greenback on Wednesday,
finishing at a level that belied its volatile range as risk
appetite and technicals pulled the currency off a two-week
 Early in the session, a slump in oil prices, weak equity
markets and additional evidence of a soft U.S. jobs market
weighed on the Canadian currency.
 But it turned around as crude prices cut losses and equity
markets marched higher, bouncing off the C$1.2625 level several
times before breaking through. The Canadian dollar has tended
to track both markets lately, partly as a barometer of risk.
 It closed at C$1.2610 to the U.S. dollar, or 79.30 U.S.
cents, up from C$1.2613, or 79.28 U.S. cents, at Tuesday's
 During Wednesday's session it reached a high at C$1.2575 to
the U.S. dollar, or 79.52 U.S. cents, after sagging to a
two-week low of C$1.2718, or 78.63 U.S. cents, overnight.
 "The ultimate move stronger for the Canadian dollar seems
more of a technical break, but throughout the day there were
some strong underlying factors supporting the move," said
Matthew Strauss, senior currency strategist at RBC Capital
Markets. "It's now finding stability around the (C$1.26)
 The currency was already moving higher as Bank of Canada
Governor Mark Carney said Canada's recession could extend
through the second half of this year. [ID:nN01263139]
 The central bank has promised to unveil its proposed
framework for extraordinary measures to pump money into the
system later this month. Several other central banks have
undertaken such measures and the Bank of Canada is expected to
follow suit to some degree.
 But Carney stressed that the prospects of implementing
non-standard measures to stimulate the economy were not cast in
stone. Such moves to so-called quantitative easing --
effectively printing money to buy securities outright on the
market -- have tended to hurt currencies, and lift bonds.
 This week's European Central Bank interest rate decision,
U.S. jobs figures and a summit of the Group of 20 leaders in
London are likely to keep the Canadian dollar under pressure as
the currency tends to underperform when global risk sentiment
is high.
 Canadian government bond prices were mixed, reflecting
rising risk appetite and the prospect of poor jobs figures.
 Gains were made early in the day on U.S. data that showed
private U.S. employers cut more jobs than expected, raising the
possibility of another huge decline in the U.S. non-farm
payroll reading that will be released on Friday.
 But later data showed sturdier U.S. factory activity and
pending sales of existing homes, dampening the safe haven bid.
 Support was pared for most maturities as stock markets
turned around. The appeal of safe haven government bonds is
curbed when riskier assets such as stocks are favored.
 Also, the U.S. Federal Reserve announced plans to buy more
government debt over the next two weeks, lending support to
long-dated issues. The sentiment spilled over into Canada.
 The two-year bond rose 1 Canadian cent to C$100.38 to yield
1.071 percent. The 10-year bond advanced 8 Canadian cents to
C$108.61 to yield 2.770 percent. Only the five-year bond was
lower, down 1 Canadian cent at C$106.16 to yield 1.747
 The 30-year bond rose 25 Canadian cents to C$125.70 to
yield 3.549 percent. The U.S. 30-year bond yielded 3.503
 Canada bonds outperformed across the curve. The 30-year
bond yield was 4.6 basis points above its U.S. counterpart,
compared with 2.4 basis points on Tuesday.
 (Editing by Rob Wilson)