December 11, 2008 / 10:09 PM / 9 years ago

CANADA FX DEBT-Canada dollar jumps, bonds track Treasuries

* C$ closes above 80 cents for first time since Dec 1

* Bonds gain on weak data, equity market slump

* Canada trade surplus narrows for second straight month

By Ka Yan Ng

TORONTO, Dec 11 (Reuters) - The Canadian dollar jumped a hefty 2 U.S. cents on Thursday, supported by firmer oil prices and an increased tolerance for risk, before giving up some of its gains from weakening equity markets.

Bond prices were higher as stock markets fell and a raft of data underscored the global economic downturn.

The Canadian dollar finished the North American session at C$1.2337 to the U.S. dollar, or 81.06 U.S. cents, up sharply from C$1.2596 to the U.S. dollar, or 79.39 U.S. cents, at Wednesday’s close.

The Canadian dollar was already firming before the release of the country’s trade figures, which showed the surplus narrowed in October for the second straight month but not by as much as economists had forecast. [ID:nN11254064]

The currency also benefited from the rising price of oil, which climbed more than 10 percent at nearly $48 a barrel. The currency generally moves with the price of oil because of Canada’s status as a major exporter.

“It rallied quite strongly in the morning as oil prices rose, but as well on quite concerted selling of the U.S. dollar across the board. It seemed to go hand in hand with a little bit of a return of risk appetite,” said Mark Chandler, fixed income strategist at RBC Capital Markets.

The Canadian dollar hit its highest during the session at midday at C$1.2168 to the U.S. dollar, or 82.18 U.S. cents, before handing back some gains as equity markets began to falter. The Toronto Stock Exchange sank nearly 3 percent on Thursday.

BONDS RISE

Canadian bond prices were higher across the curve, tracking U.S. Treasuries, which were supported by an unexpectedly large jump in U.S. jobless claims and a swelling U.S. trade deficit. [ID:nN11378229]

“We had weak data in the U.S. today. The dominant figure was the jobless claims jump,” Chandler said.

Longer term, the trend is for bond prices to keep rising as the threat of global recession weighs and central banks are expected to keep cutting rates.

The two-year bond rose 5 Canadian cents to C$102.41 to yield 1.499 percent. The 10-year bond rose 12 Canadian cents to C$109.57 to yield 3.076 percent.

The yield spread between the two-year and 10-year bond was at 157 basis points, edging up from 156 basis points at the previous close.

The 30-year bond climbed 25 Canadian cents to C$121.95 to yield 3.740 percent. In the United States, the 30-year treasury yielded 3.071 percent. (Reporting by Ka Yan Ng)

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