February 24, 2009 / 6:06 PM / 9 years ago

CANADA FX DEBT-C$ gets sudden boost to top 80 US cents

* Move pegged to traders exiting long US$ positions

* Bond prices remain mixed across the curve (Recasts with C$ moving higher)

By Frank Pingue

TORONTO, Feb 24 (Reuters) - The Canadian dollar turned higher against the greenback on Tuesday, moving as much as 1 percent off its session low, as investors exited long U.S. dollar positions.

The rally allowed the currency to recoup losses suffered earlier in the session as expectations of a Bank of Canada interest rate cut left little room for optimism that the country’s economic fundamentals were better than elsewhere.

“It looks like one decent-sized flow hit the market, caught everybody a bit the wrong way, then we saw it exasperated a bit by some cross Canada buying,” said Steve Butler, director of foreign exchange trading at Scotia Capital.

“One thing led to another and we hit some stops when we moved down below the overnight low ... and it looks like people were tripping over themselves a little bit trying to bail out of long U.S. dollar positions.”

The Canadian dollar rallied as high as C$1.2396 to the U.S. dollar, or 80.67 U.S. cents, rebounding from a session low of C$1.2540 to the U.S. dollar, or 79.74 U.S. cents.

By 12:40 p.m. (1740 GMT), the currency was at C$1.2465 to the U.S. dollar, or 80.22 U.S. cents, up from C$1.2513 to the U.S. dollar, or 79.92 U.S. cents, at Monday’s close.

The currency’s early weakness extended losses from the previous session when soft December retail figures offered more evidence of a deepening recession in Canada. The data will likely pressure the Bank of Canada to cut its key interest rate by a half point on March 3 to 0.50 percent.

“There is still some value in the Canadian dollar because although the outlook here is not particularly bright, I still think it’s relatively brighter than elsewhere,” said said Shaun Osborne, chief currency strategist at TD Securities.

With no Canadian economic data due until the end of the week, the currency’s direction will likely be dictated by moves in the U.S. dollar, which has been benefiting from its safe-haven status during the global downturn.

BONDS BARELY CHANGED

Canadian bond prices remained narrowly mixed across the curve as the lack of domestic influences to spark a move left them at the mercy of the bigger U.S. market, which was also mixed.

U.S. treasuries were mixed after data showed consumer confidence dropped to a record low in February, while Federal Reserve Chairman Ben Bernanke, testifying to Congress, made no mention of possible purchases of treasuries. [ID:nN24390027]

The next data due out in Canada will be Friday’s current account balance for the fourth quarter. The data is expected to show Canada had a current account deficit of C$4.85 billion.

The interest-rate sensitive two-year bond was unchanged at C$102.76 to yield 1.163 percent, while the 10-year bond rose 20 Canadian cents to C$111.65 to yield 2.812 percent.

The 30-year bond climbed 37 Canadian cents to C$125.65 to yield 3.554 percent.

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