March 24, 2009 / 2:18 PM / in 9 years

CANADA FX DEBT-C$ eases with equities, supply hurts bonds

* Canadian dollar off 6-week high as risk appetite wanes

* Bonds fall with U.S. Treasuries, focus on supply

TORONTO, March 24 (Reuters) - The Canadian dollar eased versus the U.S. dollar on Tuesday morning as weakness in stock markets spurred caution.

With little economic news to drive the currency this week, movement is likely to be directed by equity and commodity markets, analysts said.

North American equity markets opened lower on Tuesday, a day after a big rally that was driven partly by news of a U.S. plan to help rid banks of toxic assets.

At 9:50 a.m. (1350 GMT), the Canadian currency was at C$1.2243 to the U.S. dollar, or 81.68 U.S. cents, down from C$1.2225 to the U.S. dollar, or 81.80 U.S. cents, at Monday’s close.

“It’s quiet today so far. We’ve seen a little bit of a push to the topside in early trading for dollar/Canada, which I think is mainly predicated on the selloff that we’ve seen in equity markets,” said George Davis, chief FX technical analyst at RBC Capital Markets.

As a result, the U.S. dollar has strengthened versus most currencies, he said.

But a retest of the six-week high around the C$1.22 level that was hit on Monday is not out of the question. The Canadian dollar is now well off the 4-1/2 year low hit two weeks ago, partly because the economic outlook has improved recently as statistics have not been as dire as feared.

“From a positional standpoint, people want to play dollar/Canada from the short side. I think people are going to view these rallies as another selling opportunity. If we get up to C$1.2290 and C$1.2380, we’ll probably see people look to put on some short positions looking for another attempt to break below C$1.22 again,” Davis said.

BONDS SLIP

Canadian bond prices were lower as the prospect of new U.S. supply weighed.

Market players were more focused on the U.S. Treasury, which will sell about $158 billion in new debt this week, than on other typical drivers such as stock markets. There was an auction of $40 billion in two-year notes due on Tuesday.

The two-year bond fell 3 Canadian cents to C$100.23 to yield 1.142 percent. The 10-year bond fell 19 Canadian cents to C$108.41 to yield 2.794 percent.

The 30-year bond fell 57 Canadian cents to C$123.78 to yield 3.643 percent. The U.S. 30-year bond yielded 3.738 percent. (Reporting by Ka Yan Ng; editing by Peter Galloway)

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