Canada dollar rides US$ coattails higher, bonds up

Mon Dec 17, 2007 4:47pm EST
 
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 By John McCrank
 TORONTO, Dec 17 (Reuters) - The Canadian dollar gained more
than a cent against the U.S. dollar on Monday as interest in
the greenback prompted investors to cast their nets widely,
lifting all three North American currencies against the
crosses.
 Canadian bond prices ended higher as investors sought the
safety of government debt amid declining equity markets.
 The Bank of Canada said the Canadian dollar closed at
C$1.0057 to the U.S. dollar, or 99.43 U.S. cents, up from
C$1.0170 to the U.S. dollar, or 98.33 U.S. cents, on Friday.
 The Canadian dollar fell as low as 97.76 U.S. cents in the
overnight session before reversing direction.
 "There's been a steady stream of Canadian dollar buyers on
the back of the strength in the U.S. dollar," said Jack Spitz,
director of foreign exchange at National Bank Financial.
 The Canadian dollar, along with the Mexican peso, has been
buoyed by strength in the greenback since the end of last week,
as recent U.S. data has suggested that the U.S. Federal Reserve
may not have to cut interest rates as aggressively as earlier
thought to contain the country's economic slowdown.
 "The Canadian dollar strength is not inappropriate, given
the fact that Canada derives most of its economic benefit from
what happens south of the border," Spitz said.
 "It stands to reason that the better economics in the
States will ultimately translate into better economics in
Canada."
Forex markets ignored data from Statistics Canada that
showed foreign divestment of Canadian securities hit a record
high in October as some Canadian portfolio shares were
withdrawn from markets after being taken over by foreign
interests. See [ID:nN172729]
 Nonresidents lowered their Canadian holdings by C$24.32
billion.
 "(It's) largely a story for currency markets in that it is
helping to flesh out some of the details behind the rather
substantial appreciation in CAD in the month of October --
flow-related as takeovers crowded in demand for the currency,"
said Stewart Hall, market strategist at HSBC Canada, in a
note.
 BONDS RISE
 Canadian bond prices rose, outperforming U.S. Treasuries,
as investors sought the safety of government debt due to
tumbling equities markets.
 The Toronto Stock Exchange's main index dropped more than 2
percent on Monday in a broad-based retreat as investors fretted
over the state of the U.S economy, while taking some year-end
profits.
 "If you look at it, a lot of the equity weakness seems to
be an unwinding of a lot of the gainers we've seen this year,
with IT a little bit softer, along with materials and energy,"
said Mark Chandler, fixed income strategist at RBC Capital
Markets.
 "If that trend continues, I think on a relative basis, it
might mean that the Canadian bond market could do a little bit
better than the U.S bond market for the rest of the year."
 There are several key pieces of Canadian data to be
released this week, starting with November's inflation numbers
on Tuesday, followed by gross domestic product and retail
sales, both for October, on Friday.
 The two-year bond rose 12 Canadian cents to C$100.68 to
yield 3.885 percent. The 10-year bond added 64 Canadian cents
to C$99.52 to yield 4.061 percent.
 The yield spread between the two-year and 10-year bond
moved to 17.6 basis points from 19.3 at the previous close.
 The 30-year bond rose C$1.40 to C$114.36 to yield 4.150
percent. In the United States, the 30-year treasury
yielded 4.588 percent.
 The three-month when-issued T-bill yielded 3.88 percent,
down from 3.91 percent at the previous close.
 (john.mccrank@reuters.com; +1 416 941 8083; Reuters Messaging:
john.mccrank.reuters.com@reuters.net))
 For Reuters bond and money market pricing information
double click on one of the following:
 CAD=      Canadian dollar live quote, high/low
  FXNEWS  Headlines from global forex markets
 CDBN      Canadian bond prices
 CDMM CDMN <0#CAMMKT=> Canadian money market prices
 CABONEA   Canada-U.S. spreads (live)
 YLDS1     World yield index
 CA30YT=RR 30 year benchmark
 <0#CGB:> CGBc1 <CA/FACTOR1> MEIRP - Montreal Exchange
bond futures pricing information
 CAMCI=    Bank of Canada monetary conditions index (Reuters
calculation)
 CACALL=   Canada's call loan or overnight lending rate
 =CAD      Canadian dollar G10 trade-weighted index.
For the fixed-income market speed guides, double click on
one of the following:
  <CA/MMKT1> <CA/MMKT2> <CA/DEBT> BONDS TREASURY For
related news, double click on one of the following:
 [CAN]  Canadian news
 [NAT]  North American Treasuries news
 [M]    Money news
 [D]    Debt news
 [MF]   Markets news
 [GVD]  Government debt news
 [MMT]  Money market news
 [INT]  Interest rate news
 [CEN]  Central bank news
 [CA/]  Canadian bond market stories