CANADA FX DEBT-C$ touches 3-week low, bonds little changed

Mon Jun 15, 2009 5:01pm EDT
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 * C$ falls to close at 88.31 U.S. cents
 * Bonds almost unchanged, underperform U.S. counterparts
 * Threat to topple government a bond market factor
 (Adds details, additional comment)
 By Ka Yan Ng
 TORONTO, June 15 (Reuters) - The Canadian dollar fell hard
against the broadly firmer U.S. dollar on Monday, hitting its
lowest level in more than three weeks on weaker equity markets
and commodity prices.
 Market watchers were keeping an eye on Canadian politics as
the opposition leader in Parliament raised the possibility of
fresh elections, but it was mostly a U.S.-dollar story on
 The greenback strengthened -- and the Canadian dollar
flagged -- after Russia expressed confidence in the U.S.
currency [ID:nN1568028] and the European Central Bank said
euro-zone banks face another $283 billion in writedowns.
 The Canadian dollar closed at C$1.1324, or 88.31 U.S.
cents, down from C$1.1179 to the U.S. dollar, or 89.45 U.S.
cents, on Friday.
 At one point, it hit C$1.1377 to the U.S. dollar, or 87.90
U.S. cents, its lowest level since May 21.
 "The U.S. dollar is extremely strong across the board
today. A lot of that has been driven by the weaker sentiment
that we've been seeing in equity markets," said George Davis,
chief technical strategist at RBC Capital Markets.   
 "In turn, commodities are tracking equity markets lower as
well. Given these higher levels of risk aversion, which we
haven't seen in a while, the Canadian dollar is getting hit on
the back of that."
 Toronto's main stock index closed more than 2 percent
lower, partly because of lower oil prices. [ID:nN15234349]
 Canada is a major oil producer and the currency was also
pressured by the drop in oil prices CLc1 to around $70 a
 The Liberal Party said it was prepared to bring down the
minority Conservative government unless it received details of
planned improvements to the jobless benefits system. The
opposition could call a non-confidence vote this Friday, and
that could lead to Canada's fourth federal election in just
over five years. [ID:nN15437772]
 "It's just political posturing at this point in time but I
don't think it's going to have an undue effect on the Canadian
dollar," said Jack Spitz, managing director of foreign exchange
at National Bank Financial.
 "At this stage in the game I can't see it having a huge
effect on the Canadian dollar."
 Canadian bond prices, unable to benefit convincingly from
sagging equity markets, were almost unchanged across the curve,
and, with the possibility of a Canadian election looming,
underperformed their U.S. counterparts.
 Bonds edged higher earlier in the session as the dropping
Toronto stock market pushed bond prices higher in a flight to
safety bid. Bonds and stocks typically move inversely to one
another and depending on investors' risk appetite.
 But analysts said the prospect of an election then acted as
a weight on the bond market as political uncertainty, with its
potential to repel foreign investors, could pull the Canadian
currency lower.
 "The U.S. Treasuries are up significantly today and Canada
is unchanged, so we're underperforming dramatically. The
election threat might be on the back of people's minds and have
an effect there," said Sheldon Dong, fixed income analyst at TD
Waterhouse Private Investment.
 The benchmark two-year government bond edged up 1 Canadian
cent to C$99.72 to yield 1.395 percent, while the 10-year bond
was off 5 Canadian cents at C$101.95 to yield 3.516 percent. 
 The 30-year bond rose 10 Canadian cents to C$117.90 to
yield 3.938 percent. The comparable U.S. issue yielded 4.576
 Canadian bonds mostly underperformed U.S. Treasuries across
the curve. The Canadian 30-year bond was 63.8 basis points
below the U.S. 30-year yield, compared with about 70 basis
points below on Friday.
 (Additional reporting by Jennifer Kwan and Frank Pingue;
editing by Peter Galloway)