CANADA FX DEBT-C$ rallies as stimulus hopes tames risk aversion

Mon Feb 9, 2009 4:39pm EST
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 * C$ ends higher vs greenback for third straight session
 * Currency eases from overnight high of 82.49 U.S. cents
 * Bond prices pinned lower as supply concerns resurface
 (Recasts with comments and closing numbers)
 By Frank Pingue
 TORONTO, Feb 9 (Reuters) - Canada's dollar ended higher
versus the greenback on Monday as hopes that U.S. bank bailout
and stimulus plans will help revive the global economy lured
some traders to riskier assets like the domestic currency.
 But gains in the Canadian currency, which rallied overnight
to its highest level since Jan. 29, were held in check given
Friday's dismal jobs data that reminded investors of the dire
state of the economy.
 "The Canadian dollar has not appreciated that much because
last week's data is still kind of overhanging on the market,"
said Tyson Wright, senior foreign exchange trader at Custom
House, a currency services firm in British Columbia.
 "But the risk sentiment is slightly optimistic going into
tomorrow's announcement and that's keeping (the U.S. dollar) in
its tight range at the lower end."
 The Canadian dollar closed at C$1.2164 to the U.S. dollar,
or 82.21 U.S. cents, up from C$1.2225 to the U.S. dollar, or
81.70 U.S. cents, at Friday's close.
 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
 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 initially gave a boost to the U.S. dollar, considered
a safe have play, but it was quickly undone as traders accepted
that a bailout, while delayed, would still get done. That kept
enough interest in riskier assets and allowed the Canadian
dollar to close higher.
 "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.
 While closing higher, the domestic currency finished well
off its overnight high of C$1.2122 to the U.S. dollar, or 82.49
U.S. cents. It spent most of the later half of the session in a
tight range.
 The latest Canadian data did not have a huge impact on the
currency, analysts said, as it reinforced what markets have
already come to accept, that the economy is in recession.
 The 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 spent the entire session pinned lower
as ongoing talk of stimulus brought supply concerns back into
the picture while Toronto stocks rallied and left dealers with
less interest in more secure government debt.
 "There are definitely supply concerns this week," said
Sheldon Dong, fixed income analyst at TD Waterhouse Private
Investment. "But what's also hurting the bond market right now
besides supply is very strong global stock markets. They are
going up on hope pretty much."
 Global equities recorded their fifth straight trading day
of gains and that momentum spilled into Canada as Toronto's key
stock index ended 0.37 percent higher.
 Some experts also suggested 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 fell 8 Canadian
cents to C$102.79 to yield 1.184 percent, while the 10-year
bond dropped 33 Canadian cents to C$109.40 to yield 3.080
 The 30-year bond shed 78 Canadian cents to C$120.60 to
yield 3.805 percent.
 Canadian bonds underperformed U.S. Treasuries at the long
end of the curve, with the Canadian 30-year bond yield 15 basis
points above its U.S. counterpart, up from about 7 basis points
from Friday.
 (Editing by Jeffrey Hodgson)