Canada dollar rises as US crisis plan lifts markets

Fri Sep 19, 2008 10:11am EDT
 
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 * Canadian dollar rises 0.8 percent against greenback
 * U.S. announces $50 billion in liquidity measures
 * Bond prices drop sharply as safe-haven bid unwinds
 By John McCrank
 TORONTO, Sept 19 (Reuters) - The Canadian dollar rose to
its highest point in three weeks against a generally stronger
greenback on Friday, helped by the U.S. government's
announcement of a $50 billion plan to boost liquidity in money
markets, which sent markets soaring.
 Canadian bond prices tumbled  on a sharp unwinding of the
recent safe haven bid for government debt.
 At 9:45 a.m. (1345 GMT) the Canadian dollar was at C$1.0535
to the U.S. dollar, or 94.92 U.S. cents, up from C$1.0618 to
the U.S. dollar, or 94.18 U.S. cents, at Thursday's close.
 "The (U.S.) government is bailing out everything that
moves," said Eric Lascelles, chief economics and rates
strategist at TD Securities.
  The U.S. Treasury Department said it would use $50 billion
to guarantee money-market mutual funds in the latest step to
try to stem the ongoing financial crisis. See [ID:nN19477884]
 Other steps taken in the United States included curbing
short-selling and crafting a sweeping plan to clean up toxic
mortgage debt.
 "You start getting these ideas that we are potentially
seeing the initial stages of the end of this whole crisis for
the U.S. financial system and the U.S. economy," said David
Watt, senior currency strategist at RBC Capital Markets.
 The optimism over the plan sent global markets higher and
helped extend a rally in commodities on hopes that recovering
markets would contribute to stronger demand.
 More than 50 percent of Canadian exports are commodities,
and the surge in their prices helped give the Canadian dollar a
lift.
 BONDS SELL OFF
 Canadian bond prices dropped sharply as the big rally in
the stock markets and the better mood among investors cut away
the safe haven bid for government debt.
 The U.S. financial bailout package will have implications
for U.S. Treasuries, said TD's Lascelles, and the Canadian bond
market is heavily influenced by its larger counterpart.
 "Even before the latest announcements, you had probably
close to a trillion dollars and you've basically tacked on
another trillion in the last day or two," said Lascelles.
 "I don't think it will break the bank, but it certainly
will require substantially more Treasuries and there is a price
to be paid for that and I've calculated that you're probably
talking 30 or 40 or even more basis points higher in U.S.
yields to accommodate that additional sovereign risk."
 There was no economic data in Canada on Friday, but next
week starts off with a couple of key indicators, with retail
sales numbers for July on Monday and inflation data for August
on Tuesday.
 The two-year bond fell 77 Canadian cents to C$99.73 to
yield 2.878 percent, while the 10-year dropped C$1.45 to
C$104.50 to yield 3.692 percent.
 The yield spread between the two-year and 10-year bond was
77.4 basis points, down from 81.9 basis points at the previous
close.
 The 30-year bond tumbled C$1.50 to C$114.90 for a yield of
4.110 percent. In the United States, the 30-year Treasury
yielded 4.361 percent.
 The three-month when-issued T-bill yielded 2.27 percent, up
from 1.50 percent at the previous close.
 (Reporting by John McCrank; Editing by Peter Galloway)