CANADA FX DEBT-C$ escapes volatile session with higher close

Tue May 12, 2009 4:40pm EDT
 
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 * C$ moves in wide range through session
 * Trade data offers early bid to C$
 * Bond prices slide across curve
 (Recasts)
 By Frank Pingue
 TORONTO, May 12 (Reuters) - The Canadian dollar eked out a
small gain versus the U.S. dollar in volatile dealings on
Tuesday despite a decline in oil and equity prices that dulled
risk appetite.
  The currency got a big early boost from a report that
showed Canada's trade surplus rose in March, but much of the
move higher was undone after a closer look at the report showed
imports and exports both fell. [ID:nN11501985]
 "The trade data at first blush was a positive influence on
the Canadian dollar but it was short-lived because underlying
imports and exports both fell so it wasn't reason unto itself
to buy the Canadian dollar," said Jack Spitz, managing director
of foreign exchange at National Bank of Canada.
 "The catalyst to the bid for the Canadian dollar was higher
equities and across the board weakness in the U.S. dollar, but
that gave way to lower equity valuations, a rejection of $60
crude and a move back to some risk aversion."
 The Canadian dollar closed at C$1.1620 to the U.S. dollar,
or 86.06 U.S. cents, up from C$1.1658 to the U.S. dollar, or
85.78 U.S. cents, at Monday's close.
 Moments after the trade report was released early in the
session the currency rallied as high as C$1.1540 to the U.S.
dollar, or 86.66 U.S. cents, since the headline surplus number
was more than double analysts' expectations.
 The currency picked up more steam as equities opened higher
but they finished well off their session highs and dragged the
Canadian dollar down with them.
 The Canadian currency fell as low as C$1.1699 to the U.S.
dollar, or 85.48 U.S. cents, which meant it moved in a range of
more than 1 U.S. cent through the session.
 The price of oil, a key Canadian export, offered support to
the Canadian dollar after an early move above $60 a barrel. But
oil was unable to hold the gain and that weighed on the
currency. [ID:nN12328869]
 Some factors cited for keeping the Canadian dollar from
slipping further were economic reports from Britain and China
that bolstered the view that the global recession is easing,
which lessened safe-haven demand for the U.S. dollar.
 BOND PRICES LOWER
 Bond prices finished down across the curve, relinquishing
some of the gains made during the previous session, as the
trade data left investors with less interest in secure assets
such as government debt.
 Sheldon Dong, fixed income analyst at TD Waterhouse Private
Investment, also said part of the fall in bond prices could be
attributed to institutional accounts that sold some bonds to
make room to buy newer issues.
 The next economic indicator that may influence Canadian
bonds is Friday's Canadian manufacturing survey for March.
 The benchmark two-year Canadian government ended down 7
Canadian cents at C$100.26 to yield 1.121 percent, while the
10-year bond slipped 25 Canadian cents to C$105.30 to yield
3.132 percent.
 The 30-year bond dropped 45 Canadian cents to C$118.50 to
yield 3.908 percent.
 Canadian bonds underperformed their U.S. counterparts
across most of the curve. The 30-year bond yield was about 25
basis points below the U.S. 30-year yield, compared with around
29 basis points below on Monday.
  (Editing by Peter Galloway; editing by Peter Galloway)