September 10, 2008 / 8:27 PM / in 9 years

Dollar rises on "buy North America" bid

TORONTO (Reuters) - The Canadian dollar rose slightly against a generally stronger U.S. dollar on Wednesday as investors focused on weakening growth overseas and bought North American currencies.

Domestic bond prices fell as investors moved out of bonds and into the more lucrative stock market.

The Canadian dollar ended the North American session at C$1.0697 to the U.S. dollar, or 93.48 U.S. cents, up slightly from C$1.0706 to the U.S. dollar, or 93.41 U.S. cents, at Tuesday’s close.

The currency spent the day in a range of C$1.0658 and C$1.0744. It was given a boost early in the session from firm oil prices, but gave up most of the gains as the price of U.S. crude oil turned negative.

“It’s (the Canadian dollar) behaving remarkably well considering the continued sell-off in commodities,” said David Bradley, director of Foreign Exchange at Scotia Capital.

Canada is a major exporter of many key commodities, like oil and gold, both of which are well off recent all-time highs.

Bradley said some Canada merger and acquisition-related flows may be preventing the Canadian dollar from weakening.

A stronger U.S. dollar was also seen helping the Canadian dollar, as investors focused on a “buy North America” mode, he said.

While rising just marginally against the greenback, the Canadian dollar outperformed most other major currencies.

BOND PRICES SLIP

Canadian bond prices slipped as a stock market rally took the legs out from under the recent safe-haven bid for government debt.

“The bond market is trading off of fear right now,” said Sheldon Dong, fixed income analyst at TD Waterhouse private Investment.

“Yesterday, I think the 30-year bond yield in Canada matched its record all-time low, so why would anyone want to buy that bond at these levels? It’s only for fear considerations of the equity side.”

On Tuesday, the Toronto Stock Exchange fell nearly 500 points, sending panicky investors out of volatile equities and into less lucrative, but more stable, bonds.

But on Wednesday, market players snapped up stocks at low prices, and the main TSX index climbed over 300 points.

On the domestic data front, Statistics Canada said Canadian labor productivity declined 0.2 percent in the second quarter, marking the longest series of consecutive quarterly declines in productivity since 1990.

Productivity, measured as output per hour worked, fell by 0.6 percent in each of the previous two quarters.

The two-year bond fell 1 Canadian cent to C$100.09 to yield 2.710 percent, while the 10-year lost 5 Canadian cents to C$106.50 to yield 3.455 percent.

The yield spread between the two-year and 10-year bond was 76.1 basis points, down from 76.8 basis points at the previous close.

The 30-year bond slid 9 Canadian cents to C$118.17 for a yield of 3.938 percent. In the United States, the 30-year Treasury yielded 4.212 percent.

The three-month when-issued T-bill yielded 2.41 percent, down from 2.42 percent at the previous close.

Reporting by John McCrank; editing by Janet Guttsman

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