CANADA FX DEBT-C$ ends lower on weak data, bonds gain

Thu Dec 18, 2008 4:47pm EST
 
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 * Canadian dollar streak of gains snapped at three days
 * Weak data drags C$ from highest level since Nov. 10
 * Bond yields hit record lows in face of equity selloff
 By Frank Pingue
 TORONTO, Dec 18 (Reuters) - The Canadian dollar's three-day
streak of gains versus the U.S. dollar ended on Thursday as the
latest Canadian data supported calls for more Bank of Canada
interest rate cuts and knocked the currency from a near
six-week high.
 Bond prices were all sent higher and yields fell to record
lows as North American equity markets added to their losses and
lured investors back into secure government debt.
 The Canadian dollar closed at C$1.2077 to the U.S. dollar,
or 82.80 U.S. cents, down from C$1.1967 to the U.S. dollar, or
83.56 U.S. cents, at Wednesday's close.
 Data released on Thursday showed Canadian retail sales fell
by more than expected in October, while the leading indicator
had its biggest fall since 1991.
 The reports added to a string of weak Canadian data that
seems to support a growing chorus of market experts who expect
the Bank of Canada to follow last week's 75 basis point
interest rate cut with another cut on Jan. 20.
 "Consumers are pulling back the reins quite substantially
and in light of the fact that we just had a rate cut, it does
suggest that we are sort of in for a bumpy ride and the Bank of
Canada might not be finished cutting rates," said Charmaine
Buskas, senior economics strategist at TD Securities.
 "In addition, we are seeing general U.S. dollar improvement
simply on safe haven flows, so that also is taking some of the
wind out of the Canadian dollar's sails."
 Early in the session, the Canadian dollar rallied to
C$1.1820 to the U.S. dollar, or 84.60 U.S. cents, its highest
level since Nov. 10, due partly to ongoing fallout from the
U.S. Federal Reserve rate cut earlier this week.
 But the arrival of the Canadian data set off a slide that
the currency wasn't able to recover from. It fell as low as
C$1.2125 to the U.S. dollar, or 82.47 U.S. cents, late in the
session before bouncing back slightly.
 A fall in the price of oil, a key Canadian export, also
weighed on the currency. Oil prices fell by more than 9 percent
as slumping energy demand offset a record output cut announced
this week by the Organization of Petroleum Exporting
Countries.
 BOND PRICES RISE
 Canadian bond prices all ended in positive territory given
the mix of weak domestic data, a selloff in equity markets and
a rally in the bigger U.S. Treasury market that often lends
direction to the Canadian market.
 Toronto's main stock index, which reopened Thursday after a
technical glitch wiped out Wednesday's session, finished 3.4
percent lower for its lowest closing level in a week.
 Bond prices could get another boost early on Friday as the
key consumer prices report for November is due out and expected
to show another drop in prices.
 The two-year bond rose 16 Canadian cents to C$102.98 to
yield 1.196 percent. The 10-year rallied 65 Canadian cents to
C$112.02 to yield 2.793 percent.
 The yield spread between the two-year and 10-year bond was
at 184 basis points, up from 175 basis points at the previous
close.
 The 30-year bond jumped C$1.85 to C$127.85 to yield 3.454
percent. In the United States, the 30-year Treasury yielded
2.532 percent.
 (Editing by Peter Galloway)