CANADA FX DEBT-C$ down as oil, stocks weaken; bonds stronger

Wed Oct 7, 2009 2:32pm EDT
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 * C$ down at 93.98 U.S. cents
 * Hit highest level since Sept. 2008 earlier in day
 * Bond prices firm after solid Canada, U.S. auctions
 * Canadian bonds underperform U.S. Treasuries
 (Recasts, adds quote)
 By Jennifer Kwan
 TORONTO, Oct 7 (Reuters) - Canada's currency fell against
the U.S. dollar on Wednesday after earlier touching a one-year
high, as weakening oil prices and a lackluster showing on stock
markets dragged the unit lower.
 The currency turned south at midday as risk appetite waned,
with U.S. stocks pulling back after two days of gains, while
Toronto stocks were little changed. [.N] [.TO]
 "People may be thinking the equity rally we've seen for the
last little while may be running out of steam," said
Jean-Philippe Blais, vice president foreign exchange products
at BMO Capital Markets.
 The Canadian dollar, like the equity market, often
strengthens or falls depending on the risk appetite of
international investors.
 At 2:20 p.m. (1820 GMT), the Canadian unit was at C$1.0640
to the U.S. dollar, or 93.98 U.S. cents, down from C$1.0596 to
the U.S. dollar, or 94.38 U.S. cents, at Tuesday's close.
 Earlier in the day, the Canadian dollar shot up to 95 U.S.
cents on an upbeat tone that spilled over from Tuesday when the
Reserve Bank of Australia raised its interest rate, becoming
the first central bank in the Group of 20 nations to tighten
policy as the financial crisis abates. [ID:nSYD520296]
 The Australian move fed hopes that the global economy is
recovering and will boost equity markets and demand for
commodities, which also helped to send gold to a record high
above $1,048 an ounce. [GOL/]
 But oil prices CLc1 slipped below $70 a barrel on
Wednesday, boosted in part by a rebound in the greenback, which
rose as the optimism that followed Australia's rate hike
dissipated and traders saw the currency's decline as being
overdone. [FRX/]
 No Canadian data is due out until Thursday's housing starts
report, which is expected to show the number of groundbreakings
fell to a seasonally adjusted annualized rate of 148,000 in
September from 150,400 in August.
 On Friday, the market will focus on domestic jobs data for
September. [ID:nN07480164]
 Domestic bond prices were higher across the curve, taking
much of their cue from the bigger U.S. Treasury market where
prices rose on a well received 10-year bond auction, said Mark
Chandler, fixed income strategist at RBC Capital Markets.
 There had been concerns heading into the week about whether
the market could support the onslaught of supply.
 Canada also had a relatively successful two-year bond
auction, he added. The C$3.5 billion auction produced an
average yield of 1.422 percent and bids from primary dealers
totaled more than C$8.6 billion. [CA/AUC]
 "Those two actions went reasonably well. Equity markets
gave back the gains they were showing in futures to start the
day. Those factors have largely weighed on bond yields," said
 The two-year CA2YT=RR bond ticked 4 Canadian cents higher
at C$99.56 to yield 1.236 percent, while the 10-year bond
CA10YT=RR climbed 10 Canadian cents to C$103.85 to yield
3.280 percent.
 But the Canadian market underperformed rallying U.S.
Treasuries, with the 10-year Canadian yield around 9.8 basis
points above the U.S. curve, up from around 3.5 basis points on
 (Editing by Jeffrey Hodgson)