Canadian dollar higher after overnight rally

Thu Oct 16, 2008 10:17am EDT
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 * Canadian dollar rallies off key technical level
 * Canadian factory sales slide more than expected
 * Bond prices relinquish gains made early this week
 By Frank Pingue
 TORONTO, Oct 16 (Reuters) - The Canadian dollar was
slightly higher versus the U.S. dollar on Thursday morning,
rallying back after it dropped to a key technical level during
the overnight session.
 Canadian bond prices were pinned lower across the curve as
demand for secure assets eased along with credit conditions.
 At 9:45 a.m. (1345 GMT), the Canadian unit was at C$1.1867
to the U.S. dollar, or 84.27 U.S. cents, up from C$1.1879 to
the U.S. dollar, or 84.18 U.S. cents, at Wednesday's close.
 The currency rallied as it attracted a slew of buying
interest after it touched an overnight low of C$1.1990 to the
U.S. dollar, or 83.40 U.S. cents.
 "With the inability to break above that we saw some sellers
of dollar Canada returning to the markets and at the same time
the oil price improving again from its low," said Matthew
Strauss, senior currency strategist at RBC Capital Markets.
 Holding the Canadian dollar back from rising higher was
data that showed Canadian manufacturing sales fell nearly four
times more than expected in August.
 Strauss said the Canadian dollar could retest its overnight
low if U.S. weekly oil inventory data due out at 11:00 a.m.
(1500 GMT) comes in ahead of expectations.
 "If oil inventories increase higher than expected that
could send oil prices down and with it drive the Canadian
dollar down." he said.
 Dragging the Canadian currency down early in the overnight
session was a combination of concerns that the global economy
is teetering on the verge of recession coupled with a slide in
oil prices to a 13-month low before rebounding slightly.
 Since Canada is the main supplier of oil to the United
States, and commodities make up about half of Canadian exports,
the currency often follows the direction of oil prices.
 Canadian bond prices were down across the curve as lower
rates for interbank lending sapped demand for government debt
as investors returned to more risky forms of investments.
 Bond prices drew support from stock index futures that had
suggested gains in equity markets.
 "Given the volatility in equity markets and the weakness
overseas, there is a lot of uncertainty whether that gain will
be sustained through trading this morning," said Paul Ferley,
assistant chief economist at Royal Bank of Canada.
 "So concerns about credit tightening and the impact on the
economy will dominate thinking and trends in fixed income
 The Canadian overnight Libor rate LIBOR01 was 3.175
percent, down from 3.425 percent on Wednesday.
 Wednesday's CORRA rate CORRA= was 2.5114 percent, up from
2.5021 percent on Tuesday. The Bank of Canada publishes the
previous day's rate at around 9 a.m. daily.
 The two-year bond was down 7 Canadian cents at C$100.93 to
yield 2.297 percent. The 10-year bond was off 5 Canadian cents
at C$103.95 to yield 3.756 percent.
 The yield spread between the two-year and the 10-year bond
moved to 120 basis points from 123 basis points at the previous
 The 30-year bond was down 20 Canadian cents at C$113.25 to
yield 4.199 percent. In the United States, the 30-year Treasury
yielded 4.226 percent.
 (Editing by Peter Galloway)