January 21, 2009 / 3:56 PM / 9 years ago

REFILE-CANADA FX DEBT-C$ rises as oil price pushes above $41

3 Min Read

(Refiles to fix dateline to Jan 21)

* C$ gets lift from rising oil price

* Government bonds lower, pace U.S. market

By Jennifer Kwan

TORONTO, Jan 21 (Reuters) - The Canadian dollar edged higher against the U.S. currency on Tuesday for the first time in three sessions, boosted by a rise in the price of oil to above $41 a barrel.

At 10:20 a.m. (1520 GMT), the currency was at C$1.2620 to the U.S. dollar, or 79.24 U.S. cents, up from C$1.2676 to the U.S. dollar, or 78.89 U.S. cents, on Tuesday.

"The Canadian dollar is part of a block of currencies today that are benefiting from higher oil prices," said Eric Lascelles, chief economics and rates strategist at TD Securities. March crude was up 2.7 percent to $41.94 a barrel on Wednesday morning. [ID:nSP402296]

The rise in the Canadian unit comes as the currency has been pressured by firmness in the U.S. dollar, said Lascelles.

Risk aversion saw the greenback rise against some currencies on Wednesday on a gloomy picture overseas with European governments offering more help to stricken banks. [ID:nSP328455]

That broader theme of flight to safety remains in the background, said Craig Wright, chief economist at Royal Bank of Canada.

"We're still seeing in times of great uncertainty the U.S. dollar seems to be the safe haven," said Wright.

"Investors go to the most liquid markets; whenever we see a very bad day on markets the U.S. dollar tends to do reasonably well."

In on the economic front, Statistics Canada said on Wednesday Canadian wholesale trade declined by 1.6 percent in November from October on lower demand for exports and weaker domestic sales. But the data was not expected to have any significant impact on the currency, said Wright.

On Tuesday, the currency was largely weaker following the Bank of Canada announcement to cut its key overnight lending rate by 50 basis points to a 50-year low of 1.0 percent.

The bank also predicted a period of falling prices this year as a recession takes hold. It signaled that further rate cuts may be on the horizon.

Bonds Lower

Canadian government bond prices tracked the U.S. Treasury market lower, largely on worries about upcoming supply as the new administration under President Barack Obama prepares to launch an economic recovery plan. [ID:nLL185482]

"It seems to me that supply concerns are the ones, in particular, weighing," said Lascelles.

"Of course, you have a new president in the U.S., lots of plans for fiscal stimulus and various measures expected to be announced relatively shortly, so I think there's some trepidation there."

The two-year bond edged down 4 Canadian cents to C$103.10 to yield 1.058 percent, while the 10-year bond dropped 18 Canadian cents to C$112.70 to yield 2.703 percent.

The 30-year bond fell 60 Canadian cents to yield 3.592 percent. In the United States, the 30-year treasury yielded 3.0785 percent.

Editing by Rob Wilson

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