CANADA FX DEBT-C$ drops from 6-mth high as risk rally fades

Mon May 11, 2009 9:52am EDT
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 * Lower risk appetite and oil prices weigh on C$
 * Slide follows overnight C$ high of 87.14 U.S. cents
 * Bond prices higher across the curve
 By Frank Pingue
 TORONTO, May 11 (Reuters) - The Canadian dollar was lower
versus the U.S. greenback on Monday morning as appetite for
risk weakened and yanked the currency from the six-month high
it hit overnight.
 Canada's currency rallied overnight to C$1.1476 to the U.S.
dollar, or 87.14 U.S. cents, its highest level since Nov. 5, in
a move pegged as a follow-through from Friday, when North
American jobs data came in stronger than expected and boosted
risk appetite.
 But on Monday, as stock markets fell, investors decided to
cash in on the Canadian dollar rally and that helped to boost
the appeal of the safe-haven U.S. dollar.
 "As it became clear the (stock) markets were going to open
on a defensive footing this week the sentiment started changing
and dollar Canada rallied," said Matthew Strauss, senior
currency strategist at RBC Capital Markets. "The support for
this move came from a change in risk sentiment."
 Toronto's key stock index fell 1.67 percent at the open,
while the Dow Jones industrial average slipped 0.62 percent.
 Strauss said sentiment was also influenced by the emergence
of more analysts' notes that suggest the current rally in
equities -- Toronto's TSX index is up about 37 percent since
early March -- may be overdone even if the worst of the global
financial crisis is over.
 At 9:35 a.m. (1335 GMT), the Canadian dollar had retreated
to C$1.1571 to the U.S. dollar, or 86.42 U.S. cents, down from
C$1.1497 to the U.S. dollar, or 86.98 U.S. cents, at the Friday
close provided by the Bank of Canada.
 Another factor weighing on the Canadian dollar was a drop
in the price of oil, a key Canadian export, which backed off
last week's six-month high due to caution over prospects for
the global economic recovery. [ID:nSYD323900]
 Canadian bond prices were higher across the curve and
reclaimed a portion of their recent slide as the weakness in
equities boosted the appeal of more secure government debt.
 With no key Canadian economic data due until Tuesday's
merchandise trade figures and Friday's manufacturing sales
report, Canadian bond prices will likely take their direction
from equities and the bigger U.S. Treasury market.
 The benchmark two-year Canadian government bond was up 3
Canadian cents at C$100.28 to yield 1.111 percent, while the
10-year bond rallied 25 Canadian cents to C$105.25 to yield
3.137 percent.
 The 30-year bond was up 35 Canadian cents at C$118.45 to
yield 3.911 percent.
 (Editing by Peter Galloway)