CANADA FX DEBT-C$ rattled by risk aversion and election talk

Tue Sep 1, 2009 4:44pm 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
 (Updates to close)
 By Ka Yan Ng and Frank Pingue
 TORONTO, Sept 1 (Reuters) - Canada's dollar ended lower for
the third straight session on Tuesday as economic concerns sent
investors into safe havens like the U.S. greenback while the
threat of a federal election also dealt the currency a blow.
 The move out of the Canadian dollar intensified during the
second half of the North American session after the country's
official opposition Liberal Party said it would not support the
minority Conservative government. [ID:nN01496127]
 The news makes a fourth election in just over five years
seem very likely and quickly sent the Canadian dollar to its
lowest level of the day when it touched C$1.1068 to the U.S.
dollar, or 90.35 U.S. cents.
 Political uncertainty tends to put pressure on a country's
currency.
 "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."
 The Canadian dollar had been pinned lower for most of the
first half of the session as 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
boost the greenback's safe haven appeal.
 The Canadian dollar closed at C$1.1041 to the U.S. dollar,
or 90.57 U.S. cents, down from C$1.0950, or 91.32 U.S. cents,
at Monday's close.
 That was well off C$1.0910 to the U.S. dollar, or 91.66
U.S. cents, a level it reached after data that showed the U.S.
manufacturing sector grew in August, boosting the appeal of
riskier assets. [ID:nWEN2981]
 But the gains were short-lived as investors questioned the
validity of a rally that has put Toronto stocks about 43
percent above the five-year low hit in March.
 The choppy trading conditions that knocked the Canadian
dollar around in a wide range were also attributed partly to
the lower liquidity of the late summer period.
 BONDS STICK HIGHER
 Canadian bond prices recouped early losses and finished
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.
 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. jobs data is also due on Friday.
 Domestic bond prices held steady after the political
announcement.
 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, in part to help to meet
obligations made to the International Monetary Fund.
[ID:nN28386471].
 The two-year bond CA2YT=RR rose 7 Canadian cents to
C$99.52 to yield 1.244 percent, while the 10-year bond
CA10YT=RR ended up 19 Canadian cents at C$103.31 to yield
3.348 percent.
 The 30-year bond CA30YT=RR advanced 20 Canadian cents to
C$118.95 to yield 3.878 percent.
 Canadian bonds underperformed their U.S. counterparts
across much of the curve. The Canadian 10-year bond yield was
about 2.20 basis points below its U.S. counterpart, compared
with 3.20 basis points on Monday.
 (Additional reporting by Jennifer Kwan; Editing by Jeffrey
Hodgson)