Canadian dollar boosted by M&A; bonds mixed

Mon Jul 21, 2008 5:30pm EDT
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 * Canadian dollar rises 0.4 percent on takeover deal news
 * Upcoming retail sales, inflation data in focus
 * Bonds end mixed after late U.S. rally
 By John McCrank
 TORONTO, July 21 (Reuters) - The Canadian dollar rose 0.4
percent against the U.S. dollar on Monday, boosted by news of
proposed foreign takeover offers for Canadian companies.
 Domestic bond prices ended mixed, as a strong performance
in the Canadian stock markets took away from a safe-haven bid
for government debt, but that was offset after the bell by
concerns about the American consumer spending, normally a
bullish signal for bonds.
 The Canadian dollar closed at C$1.0014 to the U.S. dollar,
or 99.86 U.S. cents, up from C$1.0057 to the U.S. dollar, or
99.43 U.S. cents, at Friday's close.
 The currency got a boost after LS Power Equity Partners and
Global Infrastructure Partners said they aim to buy
Calgary-based TransAlta Corp (TA.TO: Quote) for C$7.8 billion.
 The price is in Canadian dollars, and unless the private
equity investors have a large stash of Canadian dollar
holdings, they will have to buy the currency when the deal goes
 M&A proposals were credited with a big chunk of the
Canadian dollar's 19.5 percent rise in 2007, but such activity
mostly dried up near the end of the year as credit conditions
 The TransAlta announcement comes on the heels of news last
week that Royal Dutch Shell (RDSa.L: Quote) was going to buy Duvernay
Oil Corp DDV.TO for C$5.9 billion.
 Looking forward, investors will focus on upcoming data,
starting with Canadian retail sales for May on Tuesday.
 May data for manufacturing shipments and wholesale trade
have already been released, with both handily beating
expectations. Add to that the Bank of Canada's talk last week
about how an improvement in Canada's terms of trade should
boost wages and salaries, government revenues, and corporate
profits, and there are some positive signs out there for the
domestic economy, said David Watt, senior currency strategist
at RBC Capital Markets.
 "So you start thinking that the risks to the retail sales
numbers are to the upside," he said.
 Inflation data for June is due Wednesday. The Bank of
Canada said in its Monetary Policy Report Update last week that
soaring oil prices would lift headline inflation as high as 4.3
percent in early 2009. Core inflation, which strips out
volatile food and energy prices, is expected to stay within the
central bank's range of 1 to 3 percent.
 Bond prices ended mixed, as a rally in Canadian equity
markets eased a recent safe-haven bid for government debt, but
that was partially offset by soft earnings from American
Express Co (AXP.N: Quote) after the bell.
 The two-year bond rose 5 Canadian cents to C$101.05 to
yield 3.164 percent. The 10-year bond slid 5 Canadian cents to
C$103.60 to yield 3.808 percent.
 The yield spread between the two-year and 10-year bond was
64.4 basis points, up from 61.2 basis points.
 The 30-year bond rose 5 Canadian cents to C$114.28 for a
yield of 4.146 percent. In the United States, the 30-year
treasury yielded 4.621 percent.
 The three-month when-issued T-bill yielded 2.37 percent,
unchanged from the previous close.
 (Editing by Frank McGurty)