CANADA FX DEBT-C$ touches 5-week high as commodities lend boost

Mon Jul 20, 2009 10:38am EDT
 
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 * C$ climbs as high as C$1.1019 to the U.S. dollar
 * Commodity rally, risk appetite drive gain
 * Bond prices lower across curve
 (Adds details, analyst comment)
 By Frank Pingue
 TORONTO, July 20 (Reuters) - The Canadian dollar shot to
its highest level in just over five weeks on Monday, driven by
a rally in commodity prices and increased optimism about the
state of the global economic recovery.
 Canada's currency rallied as high as C$1.1019 to the U.S.
dollar, or 90.75 U.S. cents, which marked its strongest level
since June 12. The move came on the heels of its 4.4 percent
rally last week.
 "The markets have been feeling a lot better about things,
whether it's the earnings reports that we saw last week or just
the fact that people are starting to feel that things are
starting to turn the corner," said Steve Butler, director of
foreign exchange trading at Scotia Capital. "The world just
looks like an awfully safe place once again this morning."
 By 9:55 a.m. (1355 GMT), the Canadian unit eased slightly
to C$1.1066 to the U.S. dollar, or 90.37 U.S. cents, which was
still up from Friday's close of C$1.1161 to the U.S. dollar, or
89.60 U.S. cents.
 Higher prices for oil and gold, both key Canadian exports,
helped lure traders into the Canadian dollar, while demand for
riskier assets also lent the currency a boost.
 The currency's rise came ahead of the Bank of Canada's
interest rate announcement on Tuesday, when it is expected to
stick to its conditional pledge and keep rates at its current
near-zero level. [ID:nN17484031]
 Plenty of eyes will likely be on the bank's accompanying
statement to see if it offers an updated view on the Canadian
dollar. In its June statement, the bank said a strong Canadian
dollar could offset positive factors like improved financial
conditions and commodity prices. [ID:nN0479627]
 "(The Bank of Canada) mentioned the currency last time and
so you have to think they will say something about it again
this time," said Butler. "But it might just fall on deaf ears
because unless they do something about it, talk is cheap."
 BONDS STUCK LOWER
 Domestic bond prices were down across the curve as news
that retail and small business lender CIT Group CIT.N may
have reached a deal that could allow it to avoid bankruptcy cut
demand for more secure government debt. [nN19323064]
 The rally in global equities overnight was followed by the
higher open in North American equities as the CIT news removed
some uncertainty for the financial sector, which is still
recovering from its deep crisis.
 The S&P/TSX composite index .GSPTSE rose 1 percent at the
open and went on to reach its highest level since June 15.
 The fall in bond prices even came after Canadian wholesale
trade fell in May for the eighth consecutive month to the
lowest since December 2005. [ID:nN2016541]
 A separate report showed foreigners scooped up a record
C$19.38 billion worth of Canadian bonds in May. [nOTT001662]
 The two-year Canada bond was down 4 Canadian cents at
C$100.03 to yield 1.233 percent, while the 10-year bond slipped
18 Canadian cents to C$101.94 to yield 3.515 percent.
 The 30-year bond was down 25 Canadian cents at C$116.20 to
yield 4.027 percent. In the United States, the 30-year Treasury
yielded 4.546 percent.
 (Editing by Jeffrey Hodgson)