CANADA FX DEBT-C$ rallies to highest level in three weeks

Tue Nov 4, 2008 10:07am EST
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 * Currency recoups nearly all of October's steep losses
 * Improved sentiment buoys Canadian dollar
 * Bond prices down as dealers await U.S. election results
 By Frank Pingue
 TORONTO, Nov 4 (Reuters) - The Canadian dollar rose to its
highest level in three weeks versus the U.S. dollar on Tuesday
as talk of interest rate cuts in Europe that could boost the
European economy allowed the currency to extend its latest
string of gains.
 Bond prices were down across the curve as dealers avoided
major commitments until seeing how equity markets react to
results from Tuesday's U.S. presidential election.
 At 9:35 a.m. (1435 GMT), the Canadian unit was at C$1.1658
to the U.S. dollar, or 85.78 U.S. cents, up from C$1.1809 to
the U.S. dollar, or 84.68 U.S. cents, on Monday.
 The rise in the currency follows gains recorded in the
previous five sessions as the global economic concerns that
dragged it down in October have started to signs of
 The Canadian dollar skidded 11.6 percent in October, but it
has rallied nearly 11 percent since early last week.
 "With easing in concerns about the global economy you are
getting sort of less of the flight into the U.S. dollar, which
had been earlier buoying the greenback to the detriment of a
number of other currencies," said Paul Ferley, assistant chief
economist at Royal Bank of Canada.
 "So with those pressures easing, you're seeing funds go
back into a number of non-U.S. currencies including the
Canadian dollar and that's why we are seeing some strengthening
 The bout of turmoil in financial markets during October was
due largely to concerns about overseas economies, but
indications that central banks are ready to act to try and
limit weakening in economic activity has helped to ease worries
on that front for now.
 There was talk in markets that both the European Central
Bank and the Bank of England will cut interest rates on
 A rise in the price of oil, a key Canadian export and one
that often dictates the currency's direction, was also offering
support to the Canadian dollar on Tuesday.
 Canadian bond prices were all down and added to losses from
the previous session as dealers steered clear of taking big
positions until seeing the results of the U.S. election race
between Democrat Barack Obama and Republican John McCain.
 "People are trying to get a gauge of how equity markets are
going to respond to the election and whether we see further
indications of some easing in terms of the credit tightening,"
Ferley said.
 Also, improved market sentiment in North American equities
markets prompted a stocks rally and left dealers with little
interest in more secure government debt.
 Dealers were also awaiting the next batch of domestic data.
September's building permits data and the Ivey Purchasing
Managers Index for October are both set to be released on
 The key report of the week comes on Friday when the October
jobs data is released. After an unexpected surge of 106,900 new
jobs in September, analysts surveyed by Reuters expect a
decline of 10,000 in October, and for the unemployment rate to
rise to 6.2 percent from 6.1 percent.
 The Canadian overnight Libor rate LIBOR01 was 2.3550
percent, up from 2.2833 percent on Monday.
 Monday's CORRA rate CORRA= was 2.2482 percent, down from
2.2752 percent on Friday. The Bank of Canada publishes the
previous day's rate at around 9 a.m. daily.
 The two-year bond was down 2 Canadian cents at C$101.48 to
yield 2.016 percent. The 10-year bond dropped 30 Canadian cents
to C$103.25 to yield 3.840 percent.
 The yield spread between the two-year and the 10-year bond
was 172 basis points, down from 173 basis points at the
previous close.
 The 30-year bond was down 30 Canadian cents at C$111.25 to
yield 4.311 percent. In the United States, the 30-year treasury
yielded 4.344 percent.
 (Editing by Peter Galloway)