October 1, 2008 / 8:31 PM / 9 years ago

Canadian dollar inches up as U.S. rescue vote eyed

* Canadian dollar rises 0.2 percent against greenback

* Investors await vote on revised U.S. bailout plan

* Bonds rally on safe haven bid as equities drop

By John McCrank

TORONTO, Oct 1 (Reuters) - The Canadian dollar rose against the U.S. dollar on Wednesday in a slight rebound from the big losses of the previous session as investors awaited a key vote on the revised U.S. bailout plan for financial markets.

Bond prices rallied as investors looked for a safe place to park their cash in response to the volatility in the stock markets.

The Canadian dollar closed the North American session at C$1.0620 to the U.S. dollar, or 94.16 U.S. cents, up from C$1.0642, or 93.97 U.S. cents, at Tuesday’s close.

The currency rose 0.2 percent against the greenback, barely cutting into the 1.9 percent it dropped the day before when tight liquidity had investors scrambling to buy greenbacks to balance their books at month end.

The Canadian unit moved higher in the overseas session, but without conviction as uncertainty over the fate of the U.S. rescue package kept many investors on the sidelines.

“It was a quick rally and a reversal, which was very much to do with low liquidity and flows driving it,” said Matthew Strauss, senior currency strategist at RBC Capital Markets.

“But it’s now settled into a tight range similar to most other markets, just waiting for further progress on the bailout package from the U.S.”

The U.S. Senate will vote on a revised version of the $700 billion plan that was rejected by the House of Representatives on Monday.

Strauss said he expects the Canadian dollar to trade in a range of C$1.0550 to C$1.0650 to the U.S. dollar for the short term and that a break on either side of that range might give an indication as to where momentum and technical trading will take it.

BONDS RALLY

Canadian bond prices rallied as investors looked for a safe place to park their cash as stock markets fell.

Stocks had a partial unwind from the big rally the day before, which was primarily related to end of quarter flows and the balancing of books, said Sheldon Dong, fixed income analyst at TD Waterhouse Private Investment.

“When people saw the stock markets rising (on Tuesday), they said it was the start of a bull market,” he said. “Not. It was just month’s end.”

The two-year bond rose 15 Canadian cents to C$100.07 to yield 2.716 percent. The 10-year bond gained 30 Canadian cents to C$104.25 to yield 3.721 percent.

The yield spread between the two-year and the 10-year bond was 105 basis points, up from 97.3 basis points at the previous close.

The 30-year bond added 65 Canadian cents to C$113.40 for a yield of 4.192 percent. In the United States, the 30-year treasury yielded 4.208 percent.

The three-month when-issued T-bill yielded 1.85 percent, down from 2.00 percent at the previous close. (Reporting by John McCrank; editing by Rob Wilson)

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