March 23, 2009 / 9:06 PM / 8 years ago

CANADA FX DEBT-C$ hits 6-week high on rise in risk appetite, oil

4 Min Read

* C$ closes at six week high

* Risk appetite grows with US plan for toxic assets

* No direct currency impact from Suncor-Petrocan deal

* Bonds fall, focus on supply, stocks (Updates to close)

By Ka Yan Ng

TORONTO, March 23 (Reuters) - The Canadian dollar jumped to a six-week high against the U.S. dollar on Monday as risk appetite sharpened on news of a U.S. plan to help rid banks of toxic assets and the price of oil climbed.

The U.S. Treasury Department rolled out detailed plans to persuade private investors to help it take up as much as $1 trillion in bad assets now choking bank balance sheets. [ID:nnN23195140]

The news lifted optimism on global equity markets. Further support for the Canadian dollar came from oil prices, which rose more than 3 percent to near $54 a barrel on Monday. Canada is a big oil producer and explorer and the domestic currency's direction is often guided by the price of the commodity.

The currency finished at C$1.2225 to the U.S. dollar, or 81.80 U.S. cents, up from C$1.2395 to the U.S. dollar, or 80.68 U.S. cents, at Friday's close.

"Whenever you're looking at the Canadian dollar nowadays, you bring up two charts. One is equities, one is oil," said David Watt, senior currency strategist at RBC Capital Markets.

But he noted the Canadian dollar has recently underperformed other commodity-linked currencies, held back by the Bank of Canada's decision to cut interest rates and consider ways to pump money into the financial system.

The Australian and New Zealand dollars, forged ahead more than 2 percent against the U.S. dollar on Monday, while the Canadian dollar lagged those gains.

But the economic outlook has picked up somewhat recently, and the building blocks for increased optimism have been steadily forming for the Canadian dollar, analysts said.

"I think what we're seeing now in (the Canadian dollar) is, to an extent, catching up. It needed a lot of help in order to keep going. Whether or not it continues is hard to say. We're certainly in a better place now than we were," said Watt.

The currency was little swayed by Canada's lone data point for the week, which showed a steeper-than-expected 1.1 drop in the composite leading indicator in February. [ID:nN23482377]

An all-stock C$18.43 billion merger of Canadian oil companies Suncor Energy (SU.TO) and Petro-Canada PCA.TO lent support to Toronto stocks, but had no direct impact on the Canadian currency. [ID:nN22497404]

The Canadian dollar made headway outside of its recent trading range between C$1.23 and C$1.24, rising as high as C$1.2203 to the U.S. dollar, or 81.95 U.S. cents.

The breakout for dollar/Canada ultimately should be at the next support level at C$1.2190, said Jack Spitz, managing director of foreign exchange at National Bank Financial.

Bonds Fall

Canadian bond prices were lower across the curve on Monday as another week of huge supply south of the border was waiting to be absorbed and as equities rallied strongly.

An unexpected rise in U.S. existing home sales in February also weighed on bonds.

Market players were more focused on the U.S. Treasury, which will sell about $158 billion in new debt this week, than on the longer-term toxic asset plan.

The two-year bond fell 5 Canadian cents to C$102.87 to yield 1.126 percent. The 10-year bond fell 25 Canadian cents to C$108.60 to yield 2.774 percent.

The 30-year bond fell 20 Canadian cents to C$124.35 to yield 3.615 percent. The U.S. 30-year bond yielded 3.690 percent.

Canada bonds outperformed across the curve. The 30-year bond yield was 7.5 basis points below its U.S. counterpart, compared with 4.9 basis points below on Friday. (Reporting by Ka Yan Ng; Editing by Jeffrey Hodgson)

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