CANADA FX DEBT-C$ falls as political doubts outweigh data

Mon Dec 1, 2008 11:00am EST
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 * Canadian dollar falls 0.4 percent against the greenback
 * Q3 GDP bests forecasts, up 1.3 pct on annualized basis
 * Bonds rise on safe haven bid as stocks tumble
 By John McCrank
 TORONTO, Dec 1 (Reuters) - The Canadian dollar fell against
the U.S. dollar on Monday as political uncertainty and a bleak
economic outlook outweighed a report showing Canada's economy
registered its strongest growth in a year in the third
 Canadian bond prices rose on a safe haven bid in response
to falling equity markets.
 At 10:30 a.m. (1530 GMT), the Canadian dollar was down 0.4
percent against the U.S. dollar, at C$1.2440, or 80.39 U.S.
cents. That's down from C$1.2370 to the U.S. dollar, or 80.70
U.S. cents, at Friday's close.
 The currency weakened off to C$1.2495, or 80.03 U.S. cents,
early in the session, largely driven by news that Canada's
three opposition parties have reached a tentative deal to
defeat the minority Conservative government in Parliament and
then put together a coalition.
 "The bottom line here is that political risk has been
priced into the Canadian dollar," said Shawn Osborne, chief
currency strategist at TD Securities.
 That uncertainty overshadowed a report showing Canada's
gross domestic product bucked the negative trend of most other
countries in the world in the third quarter. The economy grew
1.3 percent on an annualized basis in the third quarter,
beating the market forecast of 1.1 percent growth.
 While the headline number was solid, the details of the
report showed that domestic spending is slowing, and nearly all
analysts believe Canada's economy will weaken moving forward.
 "There's no escaping the fact that Canada can't continue in
splendid isolation from the rest of the world," Osborne said.
 He said he expects the Canadian dollar to trade in a range
of C$1.2275 to C$1.2475 in the short term, or at least until
the uncertainly surrounding the Canadian government is
 Canadian bonds rallied in response to plunging North
American stock markets, which increased the allure of safe
haven government debt, said Mark Chandler, fixed income
strategist at RBC Capital Markets.
 The Toronto Stock Exchange's main index was down more than
600 points early in the session on Monday.
 Chandler said the GDP data did not have an impact on bonds
because it is not relevant to the economic weakness expected to
show up in fourth quarter data, which will reflect the period
during which the economic crisis really picked up.
 The Canadian overnight Libor rate LIBOR01 was 2.4833
percent, down from 2.5000 percent on Friday.
 Friday's CORRA rate CORRA= was 2.2552 percent, up from
2.2518 percent on Thursday. The Bank of Canada publishes the
previous day's rate at around 9 a.m. daily.
 The two-year bond rose 13 Canadian cents to C$102.19 to
yield 1.630 percent. The 10-year bond gained 88 Canadian cents
to C$108.38 to yield 3.218 percent.
 The yield spread between the two-year and 10-year bond was
167 basis points, down from 179 at the previous close.
 The 30-year bond climbed C$1.72 to C$120.47 to yield 3.815
percent. In the United States, the 30-year Treasury yielded
3.326 percent.
 (Editing by Peter Galloway)