CANADA FX DEBT-C$ dives below 80 U.S. cents

Wed Nov 19, 2008 4:26pm EST
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 * Canadian dollar falls 1.8 percent versus greenback
 * Bank of Canada governor sees greater risk of recession
 * Economic malaise spurs safe-haven rally in bonds
 By John McCrank
 TORONTO, Nov 19 (Reuters) - The Canadian dollar closed
below 80 U.S. cents for the first time since since Oct. 28 on
Wednesday as stock markets tumbled, prompting nervous U.S.investors to bring funds home, benefiting the U.S. dollar.
 Canadian bond prices rallied as a variety of factors
pointed to a weaker economy, fueling a safe-haven bid for
relatively secure government debt.
 The Canadian dollar ended the North American session at
C$1.2526 to the U.S. dollar, or 79.83 U.S. cents, down from
C$1.2299 to the U.S. dollar, or 81.31 U.S. cents, at Tuesday's
 The currency ended the session 1.8 percent lower.
 One of the main drivers of the price action was U.S.
repatriation of investments in response to a global slide in
equity markets, said Steve Butler, director of foreign exchange
at Scotia Capital.
 The U.S. dollar and the Japanese yen have remained well bid
during the economic downturn because the United States and
Japan are the biggest sources of foreign investment, and those
flows are being brought home.
 The Canadian dollar has tumbled around 25 percent against
the greenback so far this year. Demand for the commodities that
Canada produces is dropping off as the global economy inches
closer to recession and that is a key factor in the currency's
decline, Butler said.
 "If you take into account where oil was and where it is
now, where gold was and where it is now, and you start playing
with the numbers and looking at the comments today from (Bank
of Canada Governor Mark) Carney, talking about further rate
cuts... maybe the fair value for the Canadian dollar right now
is closer to C$1.30 (or 76.92 U.S. cents)," he said.
 Carney said in a speech in London that the risk of
recession in Canada is greater than it was 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.
 On the data front, Canada's composite leading indicator
fell 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.
 Canadian bond prices rallied on a safe-haven bid.
 The rally was fueled by losses in the stock markets, the
soft economic data, the comments from the Bank of Canada, and
the increasing likelihood that the Canadian government will
soon have to run a deficit, said Charmaine Buskas, senior
economics strategist at TD Securities.
 "This confluence of bad news is creating a strong
underpinning for a nice rally in the bond market," she said.
 The short end of the curve was kept in check by a
larger-than-normal C$4 billion Canadian two-year bond auction.
 The two-year bond rose 3 Canadian cents to C$101.66 to
yield 1.914 percent. The 10-year bond rose 22 Canadian cents to
C$105.87 to yield 3.518 percent.
 The yield spread between the two-year and 10-year bond was
158 basis points, down from 163 at the previous close.
 The 30-year bond added 85 Canadian cents to C$115.30 to
yield 4.086 percent. In the United States, the 30-year Treasury
yielded 3.955 percent.
 (Editing by Peter Galloway)