CANADA FX DEBT-C$ stronger on oil, bonds gain slightly

Mon Dec 22, 2008 10:06am EST
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 * C$ up 1.1 percent, boosted by oil prices
 * Auto, ABCP deals ease economic risk factors
 * Bond prices up slightly
 By Cameron French
 TORONTO, Dec 22 (Reuters) - The Canadian dollar
strengthened versus the U.S. dollar on Monday, helped by higher
oil prices and the relative strength of Canada's economy
compared with its U.S. neighbor.
 Canadian bond prices were slightly higher.
 At 9:50 a.m. (1450 GMT), the Canadian currency was at
C$1.2099 to the U.S. dollar, or 82.65 U.S. cents, up from
C$1.2230 to the U.S. dollar, or 81.77 U.S. cents, at Friday's
 With trading floors thinning out ahead of year-end
holidays, investors took a stronger oil price as an incentive
to build on the currency's gains of the past two weeks.
 "I think it's just that with a lack of anything else on
which to trade, you trade off the most pressing commodity at
the time, and that's oil," said David Watt, senior currency
strategist at RBC Capital Markets in Toronto.
 Oil's 70-percent drop from record highs this summer has
yanked investment from Canada's oil-rich west and pulled the
currency down from parity with the U.S. currency.
 Oil was up 1 percent, while stronger prices on Monday for
gold and copper, which Canada also exports, gave the currency
an additional bump.
 The Canadian dollar has gained ground on the back of a
darkening U.S. economic picture and the U.S. Federal Reserve's
subsequent interest rate cuts, which have taken the central
bank's key rate down to nearly zero and given little impetus to
buy U.S. debt.
 The outlook for Canada's economy, while still expected to
fall into recession, has not been as dire as some other
countries, while Canadian central bank rates are higher than
the Fed's.
 Watt said a C$4 billion Canadian auto industry bailout plan
announced on Saturday, as well as an apparent agreement between
the country's government and banks on a C$32 billion
restructuring of the frozen asset-backed commercial paper
market, were further signs of the relative safety of Canada's
"That just resolves one of the main lingering uncertainties
in the Canadian financial system," he said of the ABCP deal.
 Canadian bond prices rose very slightly, taking little
direction from mixed U.S. Treasuries, or from equity prices
that retreated in early trading.
 The recent plunge in equity markets, coupled with worries
of a global recession, have prompted investors to embrace bonds
as a safe-haven investment, yanking yields to their lowest
levels in recent memory.
 The final piece of Canadian economic news to be released
this year will be monthly gross domestic product, which is due
on Wednesday.
 The two-year bond rose 1 Canadian cent to C$102.85 to yield
1.256 percent. The 10-year climbed 10 Canadian cents to
C$112.05 to yield 2.787 percent.
 The 30-year bond was up 10 Canadian cents at C$128.00 to
yield 3.447 percent. In the United States, the 30-year Treasury
yielded 2.571 percent.
 (Reporting by Cameron French; editing by Peter Galloway)