CANADA FX DEBT-C$ higher as US stimulus hopes feed risk appetite

Mon Feb 9, 2009 10:51am EST
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 * C$ higher in choppy trade after delay in US bailout plan
 * Currency yanked from overnight high of 82.49 U.S. cents
 * Bond prices pinned lower as supply concerns resurface
 (Adds details)
 By Frank Pingue
 TORONTO, Feb 9 (Reuters) - The Canadian dollar was higher
versus the greenback on Monday following a choppy morning as
traders worried over the timing and details of U.S. plans for
fiscal stimulus and a package to help banks.
 U.S. President Barack Obama's administration delayed the
announcement of the bank rescue plan, which had been scheduled
for Monday, until Tuesday as the government pressed lawmakers
to settle their differences over the economic stimulus plan.
 The announcement of the rescue plan, which aims to shore up
some of the biggest U.S. banking institutions, was pushed back
to enable lawmakers to spend the day focusing on the stimulus
package ahead of a vote on Tuesday.
 That helped offer an early boost to the U.S. dollar, which
is considered a safe haven play.
 But the move was undone and the Canadian currency turned
higher as traders accepted that a bailout, while delayed, would
still get done. That kept some interest in snapping up riskier
assets such as the Canadian dollar.
 "Obviously the delay getting the package pushed through in
the U.S. has been unsettling, but at the same time people have
a lot of hope that it will eventually get done and we'll see
some things actually start to go to work," said Steve Butler,
director of foreign exchange trading at Scotia Capital.
 At 10:20 a.m. (1520 GMT), the Canadian unit was at C$1.2211
to the U.S. dollar, or 81.89 U.S. cents, up from C$1.2225 to
the U.S. dollar, or 81.70 U.S. cents, at Friday's close.
 That was off the overnight high of C$1.2122 to the U.S.
dollar, or 82.49 U.S. cents, which marked the currency's
strongest level since Jan. 29.
 But the Canadian currency had also fallen to C$1.2299 to
the U.S. dollar, or 81.31 U.S. cents, as the delay in the U.S.
bank bailout triggered a temporary move to more secure assets.
 "As it sort of became clear that Obama's fiscal package was
going to get a little bit of a rough ride ... it sort of took
off some of the that optimism that had built in the market on
Friday," said David Watt, senior currency strategist at RBC
Capital Markets.
 "Friday's move was a bit excessive based on what might be
coming out today, and so I think as that sort of disappointment
seeped into the market we saw a lot of the equity markets come
off and the risk sensitive currencies come off, and that
included the Canadian dollar."
 The latest Canadian data did not have a huge impact on the
domestic currency as it reinforced what markets have already
come to accept, that the economy is in recession, analysts
 A report showed Canadian housing starts fell more than
expected in January, reflecting a similar downtrend in the
existing home market as the economy slows. [ID:nN09510810]
 Canadian bond prices were stuck slightly lower across the
curve alongside the bigger U.S. Treasury market as focus on the
stimulus and a bank rescue plan in the United States brought
supply concerns back into the picture.
 "Obviously markets are trading a little weaker so far this
morning and part of that is just mirroring the slight selloff
south of the border," said Michael Gregory, senior economist at
BMO Capital Markets.
 "Whenever you talk about fiscal stimulus package in the
U.S. the bond market senses extra supply and I think that kind
of weighs."
 Gregory also suggested that economic data from Friday that
showed Canada's economy suffered its worst job losses in over
three decades could prompt further stimulus into the economy.
 The interest-rate sensitive two-year bond was down 3
Canadian cents at C$102.83 to yield 1.159 percent, while the
10-year bond dropped 48 Canadian cents to C$109.25 to yield
3.095 percent.
 The 30-year bond dropped 98 Canadian cents to C$120.40 to
yield 3.815 percent. In the United States, the 30-year Treasury
yielded 3.741 percent.
 (Editing by Jeffrey Hodgson)