CANADA FX DEBT-Flaherty's remarks knock C$ from 10-mth high

Tue Aug 4, 2009 4:32pm EDT
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article
[-] Text [+]

 * Finance minister warns on C$ rise
 * Comments trigger immediate selloff
 * Bond prices end lower on U.S. data
 By Frank Pingue
 TORONTO, Aug 4 (Reuters) - Canada's dollar ended higher on
Tuesday but tumbled from the day's 10-month high after Canada's
finance minister said steps could be taken to slow the
currency's ascent.
 In a strong warning, Finance Minister Jim Flaherty said the
economic recovery in Canada could be damaged by the rapid rise
in the currency. [ID:nN04143584]
 The comments immediately knocked the Canadian dollar as low
as C$1.0767 to the U.S. dollar, or 92.88 U.S. cents. Earlier on
Tuesday it rallied as high as C$1.0632 to the U.S. dollar, or
94.06 U.S. cents, its highest level since Oct. 2.
 Flaherty's remarks come about two weeks after the Bank of
Canada said it stands ready to take further action to stimulate
the economy, especially if a stronger Canadian dollar threatens
growth. [ID:nN23196742]
 "We've sort've seen it before and heard it before but these
comments were a little more to the point and I think the market
has got to step up and take some notice," said Steve Butler,
director of foreign exchange trading at Scotia Capital.
 "I get the feeling like we may have turned (lower) for at
least a couple days and we'll have to figure out if the world
has changed or not or if the market is really going to listen
to the finance minister."
 Still, the Canadian dollar managed to hang on for a higher
close due to positive risk sentiment.
 The Canadian dollar closed at C$1.0745 to the U.S. dollar,
or 93.07 U.S. cents, up from Friday's close of C$1.0775 to the
U.S. dollar, or 92.81 U.S. cents. Canadian markets were shut on
Monday for the Civic Holiday, and that was when the Canadian
dollar made the bulk of its sharp move higher.
 The gains recorded on Monday, when the greenback fell
against a basket of currencies and economic data from around
the world was encouraging, proved enough to keep the Canadian
dollar from ending lower in the latest session.
 BOND PRICES DROP
 Canadian bond prices finished lower across the curve as
stronger-than-expected U.S. housing data left investors with
little interest in safe-haven assets such as government debt.
 The U.S. data showed pending sales of existing homes rose
for a fifth straight month in June, the first such streak of
advances in six years. [ID:nN04453698]
 Part of the move lower was in response to Monday's slide in
U.S. bond prices in the face of a global equity rally as
optimistic reports on manufacturing and construction reinforced
U.S. economic recovery hopes.
 "Basically we're seeing better economic data in the U.S.
and I can tell you that activity in Canada was very, very thin
today," said Sheldon Dong, fixed income analyst at TD
Waterhouse Private Investment. "The negative pull is from the
U.S."
 Canadian bond prices should get more domestic influence
later in the week when jobs data on Friday offers the latest
update on economic recovery.
 The two-year Canadian bond dropped 6 Canadian cents to
C$99.10 to yield 1.443 percent, while the 10-year bond lost 60
Canadian cents to C$101.75 to yield 3.537 percent.
 The 30-year bond fell C$1.20 to C$116.07 to yield 4.021
percent. In the United States, the 30-year Treasury yielded
4.463 percent.
 Canadian bonds underperformed U.S. Treasuries across most
of the curve. The Canadian 30-year bond was about 41.9 basis
points below the U.S. 30-year yield, compared with about 44.9
basis points below on Friday.
 (Editing by Peter Galloway)