CANADA FX DEBT-C$ weaker as nervous investors buy greenbacks

Wed Nov 19, 2008 10:05am EST
 
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 * Canadian dollar 0.1 percent lower versus greenback
 * BoC governor sees greater risk of lower economic growth
 * Short-end bond prices miss out on rally as auction looms
 By John McCrank
 TORONTO, Nov 19 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Wednesday as nervous investors
parked their cash in safe-haven U.S. Treasuries, giving the
greenback a boost.
 Canadian bond prices were mixed, with the long end rallying
on a safe haven bid and the short end weaker due to a larger
than normal two-year bond auction coming later in the session.
 At 9:40 a.m. (1440 GMT), the Canadian dollar was at
C$1.2310 to the U.S. dollar, or 81.23 U.S. cents, down from
C$1.2299 to the U.S. dollar, or 81.31 U.S. cents, at Tuesday's
close.
 The only currencies that are holding up well in the current
economic malaise are the U.S. dollar and the Japanese yen.
 That's because nervous investors are repatriating overseas
investments, bringing the cash back home, with the biggest
source of that capital being the the United States and the
second biggest being Japan, said Shane Enright, currency
strategist at CIBC World Markets.
 Another factor contributing to U.S. dollar strength, and by
default Canadian dollar weakness, is that as money is getting
pulled out of equity markets, it has to be parked somewhere and
right now the safe haven of choice is U.S. Treasuries.
 "That is seen as the safest place to put your money, even
though yields are incredibly low, and again, if you put your
money in U.S. Treasuries, you have to buy U.S. dollars to do
that," Enright said.
 He said the Canadian dollar will likely remain soft into
the medium term because the link between the U.S. dollar
strength and equity weakness is not likely to go away any time
soon.
 Bank of Canada Governor Mark Carney said in a speech in
London that the risk of lower economic growth and lower
inflation in Canada are greater than they were just a month
ago. See [ID:nN19284673]
 Carney repeated that the central bank would likely have to
cut its key interest rate further to keep Canada's
export-reliant economy afloat as banking and auto woes
reverberate around the world.
 On the data front, Canada's composite leading indicator
dropped 0.4 percent in October from September, pulled down by
sharp declines in the stock market
 Looking ahead, wholesale trade numbers for September are
due on Thursday, while the October consumer price index report
will be released on Friday.
 BONDS MIXED
 Canadian bond prices were mixed, with longer-dated bonds
benefiting from weakness in equity markets, which increased the
safe-haven bid for government debt, said Mark Chandler, fixed
income strategist at RBC Capital Markets.
 He said the short end of the curve was not benefiting from
the stock market weakness because there is a C$4 billion
Canadian two-year bond auction due later in the session.
 The Canadian overnight Libor rate LIBOR01was 2.5583
percent, down from 2.5666 percent on Tuesday.
 Tuesday's CORRA rate CORRA= was 2.2302 percent, down
slightly from 2.2370 percent on Friday. The Bank of Canada
publishes the previous day's rate at around 9 a.m. daily.
 The two-year bond fell 7 Canadian cents to C$101.56 to
yield 1.961 percent. The 10-year bond rose 3 Canadian cents to
C$105.68 to yield 3.541 percent.
 The yield spread between the two-year and 10-year bond was
154 basis points, down from 163 at the previous close.
 The 30-year bond added 15 Canadian cents to C$114.60 to
yield 4.124 percent. In the United States, the 30-year Treasury
yielded 4.074 percent.
 (Editing by Peter Galloway)