August 18, 2009 / 8:47 PM / in 8 years

CANADA FX DEBT-C$ rides risk appetite to higher close

 * C$ snaps three-session skid
 * Oil prices aid C$’s latest rise
 * Bond prices end down ahead of CPI  (Recasts)
 By Frank Pingue
 TORONTO, Aug 18 (Reuters) - Canada’s dollar rallied off an early low and closed higher versus the U.S. currency on Tuesday as firmer commodity prices and renewed risk appetite helped it snap a three-session skid.
 The currency dropped to a one-month low on Monday as stock markets and commodities fell, but stocks and commodities pushed back higher on Tuesday, dampening the safe haven appeal of the greenback and pulling the Canadian dollar up as they rose.
 “Basically a recovery in risk appetite,” said Sal Guatieri, senior economist BMO Capital Markets.
 Guatieri credited some of the change in sentiment to better-than-expected results from consumer giants Home Depot Inc (HD.N) and Target Corp (TGT.N). [ID:nN18414194]
 That helped boost the Canadian dollar as high as C$1.1002 to the U.S. dollar, or 90.89 U.S. cents, well off its session low of C$1.1108 to the U.S. dollar, or 90.03 U.S. cents.
 The Canadian dollar closed at C$1.1018 to the U.S. dollar, or 90.76 U.S. cents, up from C$1.1072 to the U.S. dollar, or 90.32 U.S. cents, at Monday’s close.
 Another driver of the Canadian dollar was the rise in the price of oil, a key Canadian export, as stronger than expected corporate results lifted equities and boosted optimism about the global economy. [ID:nSIN440961]
 BOND PRICES END LOWER
 Canadian bond prices, with no key Canadian economic data to consider, finished lower across the curve as investors returned to stocks, lessening demand for government debt.
 The fall in bond prices unwound some gains made recently as stock markets sagged and uneasiness grew over the strength of the economic recovery.
 Data that showed foreigners bought C$10.51 billion worth of Canadian securities in June, continuing recent heavy investment in bonds and stocks  [ID:N18415061], did not have any noticeable impact on the bond market.
 The next Canadian data due out is Wednesday’s inflation report for July, which is expected to show consumer prices were down 0.8 percent from a year earlier. The report would need to come in far from expectations to be influential on bond prices, some experts said.
 “If it surprises on the upside or downside it could be (a factor) but for the most part the market is not paying as much attention to the inflation numbers as the growth numbers,” Guatieri said. “The issue now is whether the recovery will be strong or half-hearted.”
 The two-year Canadian bond ended down 1 Canadian cent at C$99.42 to yield 1.290 percent, while the 10-year bond slipped 10 Canadian cents to C$102.70 to yield 3.422 percent.
 The 30-year bond slipped 25 Canadian cents to C$118.50 to yield 3.903 percent. In the United States, the 30-year bond yielded 4.361 percent.
 Canadian bonds outperformed their U.S. counterparts across most of the curve. The Canadian 30-year bond was 45.7 basis points below the U.S. 30-year yield, versus 43.7 basis points on Monday.  (Editing by Peter Galloway)                                                  

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