CANADA FX DEBT-C$ closes lower but off 1-week low
* C$ ends at 92.29 U.S. cents
* Bonds down but most outperform U.S. Treasuries
* Election risks add "flavor" to currency weakness (Updates to close)
TORONTO, Sept 14 (Reuters) - Canada's dollar finished lower against the U.S. currency on Monday but up from the one-week low it hit in early dealings, rising with equity markets as they overcame early investor concern about a trade spat between the U.S. and China.
U.S. President Barack Obama announced safeguard duties on tire imports from China late last week and China later responded by signaling anti-dumping investigations of U.S. chicken products and vehicles. [ID:nSP459289]
Worries that U.S.-China trade tensions may stall the global economic recovery dragged on the currency market overnight and subsequently knocked the Canadian currency as low as C$1.0927 to the U.S. dollar, or 91.52 U.S. cents, its lowest level since Sept. 4.
But the currency cut its losses as the Toronto stock market .GSPTSE found a firmer footing after falling almost 80 points at the open and closed the day at an 11-month high.
"If anything, all the excitement was last night," said George Davis, chief technical analyst at RBC Capital Markets. "When we got in today, the markets stabilized fairly early, in general with stock markets failing to selloff after worries over those protectionist measures."
Although the Canadian dollar was able to bounce back as high as C$1.0827 to the U.S. dollar, or 92.36 U.S. cents, it never came close to rising above Friday's close at C$1.0786 to the U.S. dollar, or 92.71 U.S. cents.
The Canadian dollar CAD=D3 closed lower at C$1.0835 to the U.S. dollar, or 92.29 U.S. cents.
The Canadian dollar seemed to have an "extra flavor" to its weakness early on Monday, said Eric Lascelles, chief economics and rates strategist at TD Securities.
"The Canadian political scene is back in play. House of Commons sits and there is much talk about election risks," Lascelles said.
But prospects for an early Canadian election appeared to fade on Monday after the opposition New Democrats welcomed government proposals for new jobless benefits as "a good start" and "a very serious proposition". [ID:nN14502973]
Recent opinion polls give the Conservatives, which have a minority government, a 3 to 5 percentage point lead over the Liberals, the biggest opposition party. That would still leave the Conservatives short of what it would take to form a majority government after the next election. Canada has had minority governments since 2004.
Canadian bond prices were lower across the curve, but outperformed their U.S. counterparts, with few catalysts to drive the market.
The decline extended a mixed session overnight, which did not have a "whole lot of tone," Lascelles said.
Data on Monday showed Canadian industries ran at 67.4 percent of capacity in the second quarter, the lowest rate on record as the recession forced every sector except food manufacturing to curb output. [ID:nN14]
The two-year bond CA2YT=RR fell 5 Canadian cents to C$99.56 to yield 1.231 percent, while the 10-year bond CA10YT=RR fell 43 Canadian cents to C$103.12 to yield 3.370 percent. The 30-year bond CA30YT=RR lost 85 Canadian cents to C$118.40 to yield 3.906 percent.
Most Canadian bonds outperformed their U.S. counterparts, except for the two-year issue. The Canadian 10-year bond yield widened slightly to 5.1 basis points below its U.S. counterpart, compared with 2.1 basis points on Friday. (Reporting by Ka Yan Ng; editing by Peter Galloway)
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