April 24, 2009 / 8:36 PM / in 8 years

CANADA FX DEBT-C$ higher on higher equities, commodities

* C$ finishes at 82.67 U.S. cents

* C$ gains momentum after Bank of Canada policy news

* Bond prices lower as equities climb (Adds details, quotes)

By Jennifer Kwan

TORONTO, April 24 (Reuters) - The Canadian dollar rose on Friday, lifted by a rally in global equities and commodity prices, and on momentum from this week’s Bank of Canada policy announcements.

North American stock markets rose on Friday, helped in part by better than expected corporate results and after a highly anticipated paper on government stress tests for U.S. banks, aimed at ensuring they have enough capital in reserve to continue to lend in potentially bleaker conditions. [ID:nN24404483]

“The way equities have performed it’s been one of those days where the commodity currencies have done better,” said Steve Butler, director of foreign exchange trading at Scotia Capital.

Broad U.S. dollar weakness also helped lift the Canadian currency, added Butler.

The Canadian dollar continued to gain momentum following a report on Thursday by the Bank of Canada that surprised markets with a go-slow approach to injecting additional economic stimulus through unconventional measures.

The bank provided an outline on how it might go about boosting the money supply by purchasing financial assets, also known as quantitative easing, and through credit easing, which involves help for targeted private-sector credit markets.

But it said it needed to be prudent and would not be taking any such steps immediately, signaling it would not go down that road before June, if at all. [ID:nN23255456] [ID:nN23361342]

The framework followed the central bank’s decision on Tuesday to cut interest rates 25 basis points to 0.25 percent, and pledge to keep the rate at 0.25 percent until mid-2010.

“Between yesterday and today, the market is backing off its fear that quantitative easing would debase the currency, while at the same time lowering the odds of central bank purchases of government debt,” said Derek Holt, economist at Scotia Capital.

Commodity prices also boosted the currency, with the price of oil CLc1, a key Canadian export, above $51 a barrel. Crude futures got a boost from higher equity markets, which hinted at healthier demand ahead, and from a weaker U.S. dollar, which attracted commodity buyers. [ID:nSP416073]

The Canadian currency shot up as high as 82.83 U.S. cents during the session, before easing somewhat to finish at C$1.2097 to the U.S. dollar, or 82.67 U.S. cents. That was up from Thursday’s close of C$1.2238 to the U.S. dollar, or 81.71 U.S. cents.

BOND PRICES LOWER

With no major domestic economic data, bond prices were lower as money flowed to equity markets and as U.S. treasuries slipped on looming supply next week. [ID:nN24479971]

Prices were also lower, particularly at the long end, after disappointment that the Bank of Canada’s report provided no commitment to buy anything.

“The near term is reflecting a bit further pricing-in of the Bank of Canada’s statement on Tuesday where they said they expect to keep rates low for a very long time,” said Holt.

“The belly and the longer end of the curve you’ve seen some capital losses because of the reduced probability of the Bank of Canada buying at any point along the curve.”

The two-year Canada bond was down 1 Canadian cent at C$100.53 to yield 0.993 percent, while the 10-year bond fell 18 Canadian cents to C$106.32 to yield 3.019 percent.

The 30-year bond fell back 25 Canadian cents to C$121.30 to yield 3.765 percent. In the United States, the 30-year treasury yielded 3.8738 percent.

Canadian bonds outperformed their U.S. counterparts across the curve. The Canadian 30-year bond yield was 10.9 basis points below its U.S. counterpart, compared with about 4 basis points below on Thursday. (Reporting by Jennifer Kwan; editing by Rob Wilson)

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