CANADA FX DEBT-C$ gets boost from oil and weak greenback

Mon Dec 15, 2008 10:05am EST
 
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 * Weaker greenback opens door to gain in Canadian dollar
 * Higher oil prices lend support to Canadian dollar's rise
 * Bonds hold steady ahead of Fed interest rate decision
 By Frank Pingue
 TORONTO, Dec 15 (Reuters) - The Canadian dollar shot higher
on Monday in a move largely explained by a surge in oil prices
and a weaker U.S. dollar, which has started to relinquish gains
made this autumn on its safe-haven status.
 Bond prices were mostly flat across the curve as the lack
of any Canadian economic data left dealers avoiding huge
commitments until learning of the U.S. Federal Reserve's
interest rate decision on Tuesday.
 At 9:50 a.m. (1450 GMT), the Canadian unit was at C$1.2290
to the U.S. dollar, or 81.37 U.S. cents, up 1.8 percent from
C$1.2512 to the U.S. dollar, or 79.92 U.S. cents, at Friday's
North American session close.
 The Canadian currency's rise came as the U.S. dollar fell
versus a basket of currencies. The fall came as investor demand
to unload risky positions and repatriate funds back into the
greenback looked like it has started to dry up.
 After rallying on a string of weak economic data and a dark
global economic outlook, the U.S. dollar has fallen back due to
a more upbeat tone on global equities markets, which has helped
to ease extreme risk aversion.
 "We're generally seeing the U.S. dollar broadly on the
defensive. It's weakened to multi-month lows against a number
of currencies and the Canadian dollar is being partly swept up
by that," said Doug Porter, deputy chief economist at BMO
Capital Markets.
 "Also we've seen seen renewed strength in energy prices to
start the week on growing talk of some serious cuts by OPEC."
 Oil prices were given a boost ahead of a meeting of members
of the Organization of the Petroleum Exporting Countries this
week. OPEC members are largely in agreement on the need to cut
output.
 That helped oil prices rise above $48 a barrel, comfortably
above the four-year low they fell to earlier this month but
still well below the record high of more than $147 in July.
Canada's currency often follows the direction of oil prices
since Canada is a key producer and exporter of oil.
 BONDS FLAT
 Canadian bond prices were mostly flat alongside the bigger
U.S. Treasury market ahead of Tuesday's Federal Reserve policy
meeting, which is expected to lower interest rates.
 The Fed is widely expected to cut rates by 50 basis points
or more from 1 percent. That would follow the Bank of Canada's
75 basis point cut in its key rate to 1.50 percent last week,
bringing the rate to its lowest level in 50 years.
 With no key Canadian data due until later this week, Porter
said bond prices could be influenced largely by the bigger U.S.
Treasury market.
 Porter also said Canada's October retail sales data due out
Thursday could draw more attention from dealers than Friday's
consumer prices report for November, which is expected to show
another drop in prices.
 "There's no question about which way the CPI is headed over
the next couple months but there still is some question over
just how weak, or not weak, the underlying Canadian domestic
economy is."
 The two-year bond was down 1 Canadian cent at C$102.43 to
yield 1.487 percent. The 10-year was up 6 Canadian cents at
C$109.51 to yield 3.082 percent.
 The yield spread between the two-year and 10-year bond was
at 159 basis points, up from 158 basis points at the previous
close.
 The 30-year bond was off 3 Canadian cents at C$121.50 to
yield 3.763 percent. In the United States, the 30-year Treasury
yielded 3.045 percent.
 (Editing by Peter Galloway)