CANADA FX DEBT-C$ rises for 3rd day as greenback sags

Wed Dec 17, 2008 4:39pm EST
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 * Canadian dollar rallies to highest level since Nov. 11
 * Aftermath of Fed cut continues to weigh on greenback
 * Bond yields near record lows after weak wholesale data
 By Frank Pingue
 TORONTO, Dec 17 (Reuters) - The Canadian dollar rose for
the third straight session on Wednesday and hit a five-week
high as the U.S. dollar was beaten down again a day after the
Federal Reserve slashed interest rates.
 Canadian bond prices finished higher on the long end of the
curve, with yields stuck near record lows, mirroring action in
the bigger U.S. Treasuries market and after data showed
Canadian wholesale trade fell more than expected.
 The Canadian dollar closed at C$1.1967 to the U.S. dollar,
or 83.56 U.S. cents, up 0.4 percent from C$1.2018 to the U.S.
dollar, or 83.21 U.S. cents, at Tuesday's close.
 About 90 minutes before the Bank of Canada gave its closing
figure for the Canadian currency it rallied to C$1.1935 to the
U.S. dollar, or 83.79 U.S. cents, which was its highest level
since Nov. 11.
 The jump was not Canada-specific as the U.S. dollar tumbled
against a slew of currencies including the euro and yen as
Tuesday's Fed decision to cut rates more than economists
expected continued to pull the rug from under the greenback.
 "What we saw was just some continued gains based on what
happened yesterday in terms of monetary policy in the U.S.,"
said George Davis, chief technical strategist at RBC Capital
 Davis also said that while the bias remains to sell the
U.S. dollar, the magnitude of its fall versus a number of
currencies may have been exaggerated by light trading volumes.
 Comments by Bank of Canada Governor Mark Carney, who said
during a speech in Toronto that 2009 would be a challenge for
many Canadians, did not have much impact on currency markets.
 Carney said measures taken in Canada and around the world
were working their way through the system and would pull the
economy out of the financial crisis it is in.
 "For the most I think the comments didn't really sort of
generate any new information to the market," Davis said.
 "He reiterated the fact that it looks like we are moving
into a recession here in Canada and that next year is likely
going to be a challenge, but those comments were pretty much as
expected given what else is going on in the background."
 Capping the Canadian dollar's rally was a drop in the price
of oil, a key Canadian export, to its lowest level in more than
four years.
 Oil prices fell as the decision by the Organization of the
Petroleum Exporting Countries to cut supply was considered by
some as not enough to offset slumping world energy demand.
 The Canadian dollar is up 6.2 percent this week so far.
 Canadian bond prices rallied on the long end of the curve
and kept yields pinned near record lows as the latest Canadian
data added to a growing string of reports that support the idea
of a weaker economy.
 The bond market was also largely influenced by the bigger
U.S. Treasury market, which also rose on the long end due to
ongoing demand for higher-yield investments following the Fed's
interest rate cut.
 Canadian data showed the value of wholesale trade fell by
1.8 percent in October from September, which was far worse than
the unchanged growth expected by the market.
 The next key Canadian economic data is October retail sales
figures on Thursday followed by Friday's consumer prices report
for November.
 The two-year bond fell 1 Canadian cent to C$102.81 to yield
1.287 percent. The 10-year rallied 60 Canadian cents to
C$111.30 to yield 2.875 percent.
 The yield spread between the two-year and 10-year bond was
at 175 basis points, up from 174 basis points at the previous
 The 30-year bond jumped C$2.40 to C$125.90 to yield 3.547
percent. In the United States, the 30-year Treasury yielded
2.643 percent.