CANADA FX DEBT-C$ rattled by weak data, backs off early high

Thu Dec 18, 2008 10:02am EST
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 * Weak data blamed for turnaround in Canadian dollar
 * C$ had earlier rallied to highest level since Nov. 10
 * Bond prices up as investors seek safer assets
 By Frank Pingue
 TORONTO, Dec 18 (Reuters) - The Canadian dollar was down
versus the U.S. dollar on Thursday as a batch of weak Canadian
data supported the idea of further Bank of Canada rate cuts and
dragged the currency from the near six-week high it reached
earlier in the day.
 Bond prices were up across the curve as investors rushed to
pick up more secure government debt following the weak data and
a selloff in Canadian equities.
 At 9:45 a.m. (1445 GMT), the Canadian currency was at
C$1.1999 to the U.S. dollar, or 83.34 U.S. cents, down from
C$1.1967 to the U.S. dollar, or 83.56 U.S. cents, at
Wednesday's close.
 Earlier it had risen to C$1.1820 to the U.S. dollar, or
84.60 U.S. cents, its highest level since Nov. 10. The Canadian
currency is still up 4 percent this week after rising in the
previous three sessions.
 Data that showed Canadian retail sales fell by more than
expected in October, coupled with the biggest fall in Canada's
leading indicator since 1991, all supported the idea of rate
cuts by the Bank of Canada and reversed the currency's rally.
 "We were firming up early in the session but in the wake of
some pretty weak economic data out for Canada this morning
we've sort of given some of that back and I suspect we will
trade flat or slightly weaker on the day," said Michael
Gregory, senior economist at BMO Capital Markets.
 "All the data points to potential for further rate cuts by
the Bank of Canada which, of course, will happen, and so that's
taken a little bit of luster off the Canadian dollar."
 Last week the Bank of Canada cut its key overnight rate by
75 basis points to 1.50 percent and said for the first time
that Canada is entering a recession. Nearly all primary dealers
are calling for another rate cut when the bank announces its
next rate decision on Jan. 20.
 A drop in the price of oil, a key Canadian export, was also
weighing on the Canadian dollar. Oil prices fell to their
lowest since July 2004 as a record output cut announced earlier
this week by the Organization of the Petroleum Exporting
Countries failed to halt the dip in oil.
 Canadian bond prices were all higher as the latest Canadian
data added to a growing string of reports that support the idea
of a weaker economy, while investors dumped riskier assets like
equities in favor of debt.
 Toronto's main stock index, which reopened on Thursday
after a technical glitch halted activity for all of Wednesday,
fell 1.46 percent to 8,596.67 at the open.
 The next key Canadian economic data due out is Friday's
consumer prices report for November.
 The two-year bond was up 2 Canadian cents at C$102.84 to
yield 1.268 percent. The 10-year rallied 33 Canadian cents to
C$111.70 to yield 2.829 percent.
 The yield spread between the two-year and 10-year bond was
at 177 basis points, up from 175 basis points at the previous
 The 30-year bond jumped C$1.05 to C$127.05 to yield 3.492
percent. In the United States, the 30-year Treasury yielded
2.600 percent.
 (Editing by Peter Galloway)