CANADA FX DEBT-Canadian dollar dips, bonds build on gains

Fri Sep 11, 2009 5:06pm EDT
 
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 * Canada down slightly at C$1.0786 to the U.S. dollar
 * Bonds creep higher in featureless trading
 By Ka Yan Ng
 TORONTO, Sept 11 (Reuters) - Canada's dollar CAD=D3
finished slightly lower against the greenback on Friday, pulled
down by softer commodity prices even though the U.S. dollar
itself weakened.
 The currency was hemmed into a fairly tight range between
C$1.0716 and C$1.0793 through the day, and closed at C$1.0786
to the U.S. dollar, or 92.71 U.S. cents, down from C$1.0783 to
the U.S. dollar, or 92.74 U.S. cents, at Thursday's close.
 The key event of the trading week was Thursday's decision
by the Bank of Canada to hold interest rates steady
[ID:nN10290237], and with that out of the way traders returned
on Friday to taking cues from commodity-price and stock-market
direction.
 The price of oil, a major Canadian export, fell towards $69
a barrel, cutting into Friday's gains on the Toronto stock
market, whose resource-filled main index briefly touched an
11-month high and stayed resilient despite lower commodity
prices.
 "It's a pure sentiment play at this time," said Brendan
McGrath, senior foreign exchange trader at Custom House in
British Columbia.
 "It's just more U.S.-dollar weakness across the board and
very choppy trading in illiquid conditions today."
 BONDS FORGE AHEAD
 Canadian government bond prices crept higher across the
curve, adding to Thursday's surge, but without any concrete
events to trigger the move.
 "There's not a lot of really weighty economic data to hang
one's hat on," said Eric Lascelles, chief economics and rates
strategist at TD Securities. "Given the sorts of moves that
we've seen today, it's been an awfully sleepy one. There's
nothing really to get too worked up about."    
 Secondary data showed the price of new houses in Canada
unexpectedly rose in July for the first monthly increase since
September 2008, suggesting the housing market may be improving
as the economy emerges from recession. [ID:nN1225443]
 The short end of the Canadian market outperformed
longer-dated issues versus U.S. Treasuries.
 The Canadian 10-year bond yield was 2.2 basis points below
its U.S. counterpart, compared with 2.5 basis points on
Thursday.
 "I am a bit surprised the Canada-U.S. 10-year spread is
almost precisely even...given greater inflation risk in the
U.S., and given what I would still say is greater supply
concerns even with Canada's larger planned deficit," Lascelles
said.
 The two-year bond CA2YT=RR edged up 1 Canadian cent to
C$99.60 to yield 1.207 percent, while the 10-year bond
CA10YT=RR gained 5 Canadian cents to C$103.50 to yield 3.325
percent. The 30-year bond CA30YT=RR rose 15 Canadian cents to
C$119.25 to yield 3.862 percent.
 (Editing by Peter Galloway)