CANADA FX DEBT-C$ turns lower as oil prices hit 20-month low
* Canadian dollar hits lowest level since Oct. 31
* Lower oil prices blamed for currency's latest slide
* Bond prices all higher after Tuesday's stock selloff
By Frank Pingue
TORONTO, Nov 12 (Reuters) - The Canadian dollar was lower versus the U.S. dollar on Wednesday as a sharp slide in the price of oil, a key Canadian export, knocked the currency to its lowest level in more than a week.
Bond prices were higher across the curve as investors who unloaded stocks on Tuesday, when bond markets were closed, moved back into more secure government debt.
At 9:25 a.m. (1425 GMT), the Canadian unit was at C$1.2135 to the U.S. dollar, or 82.41 U.S. cents, down from C$1.2050 to the U.S. dollar, or 82.99 U.S. cents, at Tuesday's close.
Familiar factors were weighing on the Canadian dollar early in the session as oil prices fell to their lowest level in 20 months, while fears of a deep global recession persisted.
"The overall trend is favoring a higher dollar Canada with commodities selling off and risk aversion clearly dominating," said Matthew Strauss, senior currency strategist at RBC Capital Markets. "Given that backdrop, it's difficult to see the Canadian dollar rallying today."
Signs that the global economic slump was deepening emerged from Europe as the Bank of England forecast the British economy will shrink sharply next year and inflation could fall to just below 1 percent in two years, suggesting further interest rate cuts to come.
The continued worries about the state of the global economy tend to prompt a move by traders into the greenback, which is widely considered a secure currency during times of uncertainty.
Comments by Finance Minister Jim Flaherty, who said Canada remains on track for a small surplus and that the government will triple the amount of insured mortgages it will buy from banks to help improve long-term credit did not have any noticeable impact on the currency.
BONDS PRICES RALLY
Canadian bond prices rallied across the curve in a delayed reaction by dealers who dumped stocks during Tuesday's session, when bond markets in Canada and the United States were closed.
Bond markets were closed on Tuesday for Remembrance Day in Canada and for Veterans Day in the United States, forcing dealers to wait until Wednesday to load on more more secure debt.
With no economic data due out in Canada on Wednesday, bond prices will likely be dictated by movements in North American stock markets, which could be in for another back-and-forth session given fears about a deep economic slump.
The two-year bond was up 7 Canadian cents at C$101.72 to yield 1.889 percent. The 10-year bond was up 44 Canadian cents at C$104.67 to yield 3.665 percent.
The yield spread between the two- and 10-year bond was 182 basis points, up from 179 basis points at the previous close.
The 30-year bond rallied 50 Canadian cents to C$113.05 to yield 4.210 percent. In the United States, the 30-year Treasury yielded 4.160 percent. (Editing by Peter Galloway)
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