CANADA FX DEBT-C$ eases with oil, election uncertainty
* C$ edges down to $1.0537, bond prices slip
* Canada general election too tight to call
* Bin Laden death pulls down commodity prices
TORONTO, May 2 (Reuters) - The Canadian dollar softened from a 3-1/2 year high against the U.S. dollar on Monday, pulled down by falling oil and commodity prices after U.S. forces killed al-Qaeda leader Osama bin Laden.
Canadian government bond prices were slightly weaker across the curve as equity markets were boosted in reaction to the death of the West's most wanted man.
Oil, gold and silver prices all fell as the news swept across thinly traded financial markets. But investors warned that this kind of reaction to major news is often only temporary, and the initial gains were already cooling. [MKTS/GLOB] [ID:nL3E7G20ZD]
A too-close-to-call general election in Canada on Monday added a bit of pressure on the Canadian currency as the vote could just as easily hand the ruling Conservatives a solid grip on power or leave them so weak they could soon lose office. [ID:nN02201446]
"We may see a bit of Canadian dollar weakness drift into the market just on uncertainty with the election results," said John Curran, senior vice president at CanadianForex, noting the domestic currency was broadly underperforming.
The right-of-center Conservatives, who have governed Canada since early 2006, started the campaign with a healthy lead, but has since seen their lead dwindle in the face of a campaign by the left-leaning New Democrats, a pro-labor party that has never held power in Canada.
"I don't think it's going to matter who gets in. Eventually the market will come to the terms (with) Canada is a stable country. Things will be fine and the Canadian dollar will strengthen," Curran said.
At 8 a.m. (1300 GMT), the currency CAD=D4 was at C$0.9490 to the U.S. dollar, or $1.0537, down from C$0.9464 to the U.S. dollar, or $1.0566, at Friday's North American session close.
In the short-term, the 3-1/2 year high hit on Friday at C$0.9450 to the U.S. dollar, or $1.0582, will be closely watched.
The two-year bond CA2YT=RR was down 3 Canadian cents to yield 1.720 percent, while the 10-year bond CA10YT=RR fell 15 Canadian cents to yield 3.231 percent.
(Reporting by Ka Yan Ng, Editing by Chizu Nomiyama)
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