CANADA FX DEBT-C$ benefits from improved market sentiment

Mon Nov 3, 2008 9:49am EST
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 * Canadian dollar rises half a percent versus greenback
 * Bonds up slightly as month-end selling pressures ease
 By John McCrank
 TORONTO, Nov 3 (Reuters) - The Canadian dollar rose against
the U.S. dollar on Monday as improved market sentiment led
investors to take a chance on the commodity-based currency.
 Bond prices, with no major Canadian data to influence moves
until the latter half of the week, rose slightly as selling
pressure from month-end flows eased.
 At 9:23 a.m. (1423 GMT), the Canadian dollar was 0.5
percent higher against the U.S. dollar, at C$1.1986, or 83.43
U.S. cents. That compared with C$1.2045 to the U.S. dollar, or
83.02 U.S. cents, at Friday's North American session close.
 "It's a follow-through from last week when we saw sentiment
changing and we saw the rally in equities globally, and I think
what happened is that (the Canadian dollar) had just fallen so
far so quickly, that some investors decided to return to
riskier assets," said Matthew Strauss, senior currency
strategist at RBC Capital Markets.
 Last week, the Canadian dollar recorded its first weekly
gain in five weeks, rising 5.7 percent as some investors bet
that the global recession expected in 2009 will be shallow.
That gave some support to commodity prices, as demand was not
seen dropping off as much as previously feared, which
translated to a stronger Canadian dollar.
 Canada is a major exporter of key commodities such as oil,
natural gas, gold and base metals.
 Even with a winning week to close out the month, the
currency ended October down around 12 percent, for its biggest
monthly slide ever, said Doug Porter, deputy chief economist at
BMO Capital Markets, in a note to clients.
 "Not only was that the largest monthly decline ever (nearly
doubling the prior record of minus 6.2 percent in November
1976), but it was also larger than any yearly decline in the
currency," he said.
 There is no major Canadian economic data scheduled until
Thursday, when September's building permits data and the Ivey
Purchasing Managers Index for October are set to come out.
 The headline report for the week comes on Friday, with the
October jobs numbers. After an unexpected surge of 106,900 new
jobs in September, analysts surveyed by Reuters are expecting a
decline of 10,000 positions, and that the unemployment rate
will rise to 6.2 percent from 6.1 percent.
 Bond prices were slightly higher as month-end pressures and
balancing flows let up, said Eric Lascelles, chief technical
strategist at TD Securities.
 "You had an urgent need of some investors and some funds to
divest themselves of bonds in general, because you have a lot
of investors who were spooked and were pulling money out of the
market," he said.
 "There is just a gradual loosening of the belt that was
tightening things up last week, so there is room for modest
 The Canadian overnight Libor rate LIBOR01 was 2.2833
percent, down from 2.3250 percent on Friday.
 Friday's CORRA rate CORRA= was 2.2752 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 2 Canadian cents to C$101.50 to
yield 2.007 percent. The 10-year bond added 13 Canadian cents
to C$104.03 to yield 3.744 percent.
 The yield spread between the two-year and the 10-year bond
moved to 174 basis points from 173 basis points at the previous
 The 30-year bond climbed 10 Canadian cents at C$111.95 to
yield 4.271 percent. In the United States, the 30-year Treasury
yielded 4.341 percent.
 (Reporting by John McCrank; Editing by Peter Galloway)