CANADA FX DEBT-C$ gets boost from stronger commodities

Tue Jan 6, 2009 5:44pm EST
 
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 * Canadian dollar touches highest level since November
 * Bonds edge higher, helped by steady U.S. market
 By Jennifer Kwan
 TORONTO, Jan 6 (Reuters) - The Canadian dollar touched its
highest level against the U.S. currency in nearly two months on
Tuesday, as stronger commodity prices and hopes for economic
stimulus packages by western governments boosted sentiment.
 Bonds were largely higher across the curve, helped by a
rebound in the bigger U.S. market, following a successful
auction.
 The Canadian currency finished at C$1.1828 to the U.S.
dollar, or 84.55 U.S. cents, up from Monday's close at C$1.1900
to the U.S. dollar, or 84.03 U.S. cents.
 Canada's dollar has been helped by the recent resurgence in
oil prices CLc1, which rose above $50 a barrel during the
session. But crude for February delivery settled down 23 cents
at $48.58 a barrel, as weak U.S. economic data offset rising
geopolitical tensions and OPEC production cuts.
[ID:nSIN367919]
 The currency also found support from rising metal prices.
Copper climbed to its highest level in nearly five weeks
[ID:nL659417], while gold also finished higher [ID:nL1449620].
 Fluctuations in commodity prices often sway the currency as
Canada is a major producer and exporter.
 "I think generally the Canadian dollar is benefiting in the
early days of 2009 from a tentative view that there could be an
economic recovery globally by the second half of the year and
also by some moderate firming in commodity prices," said Doug
Porter, deputy chief economist, BMO Capital Markets.
 Economic data will likely remain sour in coming months,
analysts say, but there could be room for growing optimism.
 "People are now looking for the major economic releases and
anything that has a leading edge to it as opposed to rear-view
numbers," said Shane Enright, currency strategist, CIBC World
Markets.
 In late December, the currency was largely range-bound,
after being hit by tumbling commodity prices in the second half
of 2008.
 BONDS MIXED
 Domestic government bond prices were mostly higher,
benefiting from a rebound in U.S. Treasury issues.
 U.S. bonds erased losses on Tuesday afternoon, helped by a
decline in stocks from session highs and a successful auction
of inflation-protected bonds.
 Earlier, supply concerns had pressured prices in both
markets and analysts expect this remain a concern.
 "I do think that has been a factor weighing on the market
in the last couple of weeks. Basically, it's going to be a bit
of a battle between supply concerns and a very weak economy,"
said Porter.
 In Canada, a record monthly drop in both industrial
producer and raw material prices was largely shrugged off by
the bond market, analysts said.
 The two-year bond rose 1 Canadian cents to C$102.99 to
yield 1.151 percent, while the 10-year bond edged up 8 Canadian
cents to C$111.18 to yield 2.883 percent.
 The yield spread between the two-year and 10-year bond was
175 basis points, versus 150 at the previous close.
 The 30-year bond fell 20 Canadian cents to yield 3.652
percent. In the United States, the 30-year treasury yielded
3.0248 percent.
 (Reporting by Jennifer Kwan; editing by Rob Wilson)