CANADA FX DEBT-C$ falls as stock plunge benefits greenback

Thu Nov 20, 2008 9:56am EST
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 * Canadian dollar falls 1.5 percent versus greenback
 * Canada September wholesale trade rises unexpectedly
 * Bonds rally on safe-haven bid
 By John McCrank
 TORONTO, Nov 20 (Reuters) - The Canadian dollar fell 1.5
percent against the U.S. dollar on Thursday as global stock
markets took steep losses on recession fears, prompting U.S.
investors to unwind overseas investments, benefiting the
 Canadian bond prices rallied as the weakness in stocks
added to the allure of relatively safe government debt.
 At 9:38 a.m. (1438 GMT), the Canadian dollar was at
C$1.2718 to the U.S. dollar, or 78.63 U.S. cents, down from
C$1.2526 to the U.S. dollar, or 79.83 U.S. cents, at
Wednesday's close.
 The weakening of the currency is not a made-in-Canada
story, and has more to do with a strengthening U.S. dollar,
said Adam Cole, head currency strategist at RBC Capital Markets
in London.
 "Money is being brought back into the U.S. from overseas
equity markets, having for the last four or five years built up
a very large, overweight position in overseas stocks, and
periods of risk aversion are seeing that money brought home to
the U.S.," he said.
 Cole said that trend is likely to continue, and if stock
markets drop another few percent, the Canadian dollar could
test the lows it hit in October. That would put the currency at
its weakest point since September 2004.
 The pressure on the Canadian dollar could be seen even
after Canadian wholesale trade numbers for September surprised
to the upside, rising 1.5 percent as auto sales rose .See
 The market was expecting a 0.3 percent decline in the
month, according to a Reuters poll.
 U.S. jobless claims figures were also released on Thursday
 "The U.S. jobless claim numbers were truly awful, and in
the perverse way the markets are trading at the moment, poor
data are an excuse to buy U.S. dollars, in the sense that the
immediate market reaction to the poor jobless claim numbers was
for the stock market to come off again, and as it did that the
(U.S.) dollar rallied," Cole said.
 Canadian inflation data for October is due on Friday.
 Canadian bond prices rallied as the weakness in equities
increased the allure of relatively safe government debt.
 "It's a good rally in bonds and I think it will continue
until at least there is some sign that the economy has hit
bottom and I don't think we are there yet," said Carlos Leitao,
chief economist at Laurentian Bank of Canada.
 The Canadian overnight Libor rate LIBOR01was 2.5000
percent, down from 2.5583 percent on Wednesday.
 Wednesday's CORRA rate CORRA= was 2.2413 percent, up from
2.2302 percent on Friday. The Bank of Canada publishes the
previous day's rate at around 9 a.m. daily.
 The two-year bond rose 9 Canadian cents to C$101.75 to
yield 1.868 percent. The 10-year bond rose 70 Canadian cents to
C$106.70 to yield 3.418 percent.
 The yield spread between the two-year and 10-year bond was
163 basis points, up from 158 at the previous close.
 The 30-year bond added C$1.20 to C$116.70 to yield 4.011
percent. In the United States, the 30-year Treasury yielded
3.774 percent.
 (Editing by Peter Galloway)