Canada dollar rises on trade data, liquidity plan

Wed Dec 12, 2007 10:31am EST
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 By John McCrank
 TORONTO, Dec 12 (Reuters) - The Canadian dollar rebounded
against the U.S. dollar on Wednesday morning, helped by some
stronger-than-expected trade data and a coordinated move by
major central banks to help resolve liquidity issues.
 Canadian bond prices slumped as the steps taken by the
central banks reduced the safe haven appeal of government
 At 10:05 a.m. (1505 GMT), the Canadian dollar was at 99.16
U.S. cents, valuing a U.S. dollar at C$1.0085, up from
Tuesday's session close of 98.58 U.S. cents, or C$1.0144.
 Canada's trade surplus unexpectedly rose to C$3.32 billion
($3.29 billion) in October from C$2.81 billion in September,
although the value of both imports and exports fell, Statistics
Canada said.
 "The market was very concerned that we could see a further
decline in the trade number and then we had this pleasant
upside surprise," said Matthew Strauss, senior currency
strategist at RBC Capital Markets.
 Analysts had on average predicted October's surplus would
be C$2.45 billion due to the effects of the strong Canadian
dollar and the weaker U.S. economy.
 "We still believe net trade is going to be a drag on the
economy, but at least from this single number, it looks like it
might not be as bad as originally anticipated," Strauss said.
 However, aside from September, the trade surplus recorded
in October was still the lowest since May 1999, said Jacqui
Douglas, economics strategist at TD Securities in a note.
 Also, major central banks around the world came together
under the leadership of the U.S. Federal Reserve to ease the
tight conditions in the money market heading into the yearend.
 Liquidity traditionally dries up a bit at yearend but the
recent credit crunch has exacerbated the problem.
 For its part, the Bank of Canada said it would expand its
list of securities eligible as collateral to provide liquidity
to the markets and will include U.S. Treasuries, probably by
the middle of 2008.
 Canadian bond prices tumbled after the coordinated central
bank efforts were announced, reducing the safe-haven appeal of
government debt.
 The Fed cut its key fed funds rate on Tuesday by 25 basis
points to 4.25 percent to help guide the U.S. economy through
the credit market trouble and the U.S. housing downturn.
 The Fed also trimmed a quarter point off its discount rate,
which it charges for direct loans to banks, to 4.75 percent.
 But many market players had been calling for 50 basis point
cuts to both the fed funds rate and the discount rate, and
bonds rallied as a result.
 Bond prices unwound on Wednesday, however, as rumors
circulated that the Fed would provide additional measures to
deal with the credit problems, and they fell further on the
coordinated announcement.
 The overnight Canadian Libor rate LIBOR01 was at 4.2500
percent, unchanged from Tuesday.
 Tuesday's CORRA rate CORRA= was 4.2776 percent, down from
4.2655 percent.
 The two-year bond fell 44 Canadian cents to C$100.73 to
yield 3.860 percent. The 10-year bond slid 79 to C$99.75 to
yield 4.031 percent.
 The yield spread between the two-year and 10-year bond
moved to 17.5 basis points from 30.3 at the previous close.
 The 30-year bond declined C$1.11 to C$114.33 to yield 4.152
percent. In the United States, the 30-year Treasury yielded
4.555 percent.
 The three-month when-issued T-bill yielded 3.86 percent,
unchanged from the previous close.
 (Reporting by John McCrank; Editing by Peter Galloway)