CANADA FX DEBT-C$ rallies on hope of renewed commodity demand

Mon Nov 10, 2008 9:51am EST
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 * China stimulus package helps commodity-based currencies
 * C$ adds to gains recorded in previous two weeks
 * Bond prices all lower on renewed risk appetite
 By Frank Pingue
 TORONTO, Nov 10 (Reuters) - The Canadian dollar rose versus
the U.S. dollar on Monday as initiatives announced by China to
stimulate its economy gave a bid to the currencies of countries
whose economies rely heavily on exporting commodities.
 Canadian bond prices were lower across the curve as the
prospect of renewed growth in slumping economies helped to
temper fears of a deep global recession and sparked renewed
interest in equities.
 At 9:35 a.m. (1435 GMT), the Canadian unit was at C$1.1828
to the U.S. dollar, or 84.55 U.S. cents, up from C$1.1880 to
the U.S. dollar, or 84.18 U.S. cents, at Friday's close.
 The rise in the Canadian dollar extends a rally over the
past few weeks and helps to erase more of its 11.6 percent skid
in October, when equity markets sold off and prompted intense
demand for the greenback.
 China's launch of a stimulus plan worth nearly $600
billion, which could kick off a round of big spending and
interest rate cuts by leading economies to steer clear of a
recession, gave a boost to the Canadian dollar. The currency is
often influenced by commodity prices or to the outlook for
demand in commodities, especially oil and gold.
 "We got the news from China over the weekend and that seems
to be the primary driver ... and with markets that are still
relatively thin, any good news is getting played up to a great
degree," said David Watt, senior currency strategist at RBC
Capital Markets.
 "So just the idea that maybe the China slowdown will be
moderate and then they'll get back to buying commodities more
aggressively maybe by the middle of next year."
 The Canadian currency rallied to C$1.1658 to the U.S.
dollar, or 85.78 U.S. cents, early on Monday, but it steadily
retreated after domestic data showed housing starts fell 3.1
percent in October.
 Canadian bond prices were all lower as the China stimulus
plan convinced investors to unload more secure government debt
in favor of riskier assets such as stocks.
 The Toronto Stock Exchange's main index rose 2.6 percent at
the open, while the Dow Jones industrial average was up 0.77
 The drop in bond prices extended losses suffered during the
previous session when a better-than-expected headline number on
the Canadian jobs report weighed on prices.
 The Canadian overnight Libor rate LIBOR01 was 2.5000,
unchanged from 2.5000 percent on Friday.
 Friday's CORRA rate CORRA= was 2.2411 percent, down from
2.2419 percent on Thursday. The Bank of Canada publishes the
previous day's rate at around 9 a.m. daily.
 The two-year bond was down 7 Canadian cents at C$101.63 to
yield 1.936 percent. The 10-year bond fell 15 Canadian cents to
C$104.10 to yield 3.735 percent.
 The yield spread between the two- and 10-year bond was 178
basis points, down from 181 basis points at the previous
 The 30-year bond dropped 30 Canadian cents to C$112.40 to
yield 4.246 percent. In the United States, the 30-year Treasury
yielded 4.276 percent.
 (Editing by Peter Galloway)