CANADA FX DEBT-C$ falls as oil price sags, stocks tumble

Thu Jan 21, 2010 4:29pm EST
 
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 * Ends at C$1.0514 to the US$, or 95.11 US cents
 * White House bank plan weighs on North American markets
 * Bank of Canada paints brighter growth picture
 * Bond prices slightly higher
 (Updates to close, quote)
 By Jennifer Kwan
 TORONTO, Jan 21 (Reuters) - The Canadian dollar retreated
against the U.S. currency on Thursday as commodity prices
dropped and North American stock markets slid after U.S.
President Barack Obama proposed new risk rules for banks.
 U.S. stocks, typically a barometer of risk appetite,
dropped as the president proposed stricter limits on financial
institutions' risk-taking in a new populist-tinged move that
rattled markets. [.N] [ID:nN21115923]
 That added to already bruised investor sentiment after
strong Chinese growth data fueled concerns over possible
monetary tightening in the giant Asian economy, said David
Watt, senior currency strategist at RBC Capital Markets.
[ID:nTOE60K011]
 That China might step on the brakes a little more
aggressively invoked fears that one of the few bright lights in
the global economic recovery may dim, said Watt.
 The Canadian dollar ended at C$1.0514 to the U.S. dollar,
or 95.11 U.S. cents, down from Wednesday's finish of C$1.0470
to the U.S. dollar, or 95.51 U.S. cents.
 The currency hit a low of C$1.0525, or 95.01 U.S. cents,
during the session, hurt by broad U.S. dollar strength.
 Watt added that a Bank of Canada report that painted a
slightly rosier inflation and growth picture may have helped to
stem potentially steeper losses.
 In its Monetary Policy Report, the central bank raised its
economic growth projection for the final three quarters of this
year and forecast inflation throughout 2010 would be higher
than it had expected. [ID:nBAC002364]
 "They did talk favorably about global growth and favorably
about the outlook for commodity prices ... I think that limited
any (Canadian dollar) sell-off, even though we had all that
carnage with stock markets. The Canadian dollar managed to hold
its own," said Watt.
 Camilla Sutton, a currency strategist at Scotia Capital,
said the currency's moves after the report were fairly muted as
it largely repeated Tuesday's message from the central bank,
when it announced it would keep rates steady.
 "The report was very neutral. It was very much in line with
the commentary we heard on Tuesday. They'd already given us
some insight on growth changes so we just have that now firmed
up," she said.
 After the Monetary Policy Report's release, Governor Mark
Carney said the Canadian economy was on track to recover this
year and the outlook has improved since October. He repeated
the bank's pledge to keep interest rates at current levels
until the end of June as long as inflation remains in check,
but declined to forecast rates beyond June. [ID:nN21189595]
 The price of oil, a key Canadian export, dropped more than
2 percent to a 2010 low around $76 a barrel after U.S. data
fueled demand concerns, while gold prices also dropped. [O/R]
[GOL/] Both commodities exert a strong influence on the
Canadian dollar.
 BONDS FIRMER
 Government bond prices were firmer, mirroring moves in the
influential U.S. Treasury market where debt prices rose as
stocks tumbled and money flowed to less risky assets. [US/]
 "Part of that is related to risk. U.S. Treasury market
yields are down and prices are up pretty solidly. Canada is
following that a little," said Michael Gregory, senior
economist at BMO Capital Markets.
 The two-year bond CA2YT=RR was largely unchanged, up 4
Canadian cents at C$100.12 to yield 1.187 percent. The 30-year
bond CA30YT=RR climbed 28 Canadian cents to C$116.55 to yield
3.999 percent.
 Canadian bonds mostly underperformed U.S. notes across the
curve. The Canadian 2-year bond was 35 basis points above the
U.S. 2-year yield, compared with about 32 basis points in the
previous session.
 (Editing by Rob Wilson)