December 12, 2008 / 3:49 PM / 9 years ago

CANADA FX DEBT-C$ falls on auto industry worries, bonds up

* Canadian dollar falls, underperforms on the crosses

* Auto industry in Canada and United States in focus

* Bonds up, U.S. retail sales wilt for 5th month in a row

TORONTO, Dec 12 (Reuters) - The Canadian dollar fell against the U.S. dollar on Friday, handing back some of the Thursday’s hefty 2 U.S. cent gain, as the survival of the North American auto industry was put in question by the failure of a bailout package for the industry in Congress.

Canadian bond prices rose on weak retail sales data in the United States.

At 10:40 a.m. (1540 GMT), the Canadian dollar was at C$1.2410 to the U.S. dollar, or 80.58 U.S. cents, down from C$1.2337 to the U.S. dollar, or 81.06 U.S. cents, at Thursday’s close.

The Canadian currency lost ground as the U.S. dollar trimmed losses after the White House said it may help the auto sector by tapping into part of a $700 billion financial sector rescue package, after a proposed bailout for the auto industry failed in the U.S. Senate on Thursday. [ID:nN12436483]

In Canada, where automakers are also looking for aid, the Canadian government said it is open to helping the ailing industry. [ID:nN12441314]

Because the auto industry woes affects both countries, it may be more useful to look at cross rates, said Adam Cole, global head of currency strategy at RBC Capital Markets in London.

“The bottom line is that the Canadian dollar is generally underperforming on the crosses,” he said.

“The better barometer really is to look at Canada versus a nondollar currency. But the fact that Canada is down versus the euro quite sharply is a better barometer of the spillover that the market sees for Canada from the U.S. problems,” he said.

The Canadian dollar fell to C$1.6597 against the euro, or 60.25 euro cents, down sharply from C$1.6138, or 61.97 euro cents, at the previous session.

Also hurting the Canadian currency was a 8 percent drop in the price of oil to $44 a barrel, reversing a large portion of Thursday’s move higher. The currency generally moves with the price of oil because Canada is a major oil exporter.

BONDS RISE

Canadian bond prices were higher across the curve, tracking U.S. Treasuries, which were supported by data that showed sales at U.S. retailers dropped for the fifth straight month in November, although the drop was not as bad as expected.

Longer term, market players expect bond prices to keep rising as central banks are likely to continue to cut rates to try to stimulate their economies.

The two-year bond rose 3 Canadian cents to C$102.44 to yield 1.482 percent. The 10-year bond rose 25 Canadian cents to C$109.85 to yield 3.043 percent.

The yield spread between the two-year and 10-year bond was at 159 basis points, edging up from 157 basis points at the previous close.

The 30-year bond climbed 20 Canadian cents to C$122.15 to yield 3.730 percent. In the United States, the 30-year Treasury yielded 3.057 percent. (Reporting by Ka Yan Ng; editing by Peter Galloway)

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