Canada dollar rises on trade data, liquidity plan
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 debt.
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)
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