Canadian dollar rises for 7th session, bonds fall

Mon Dec 24, 2007 2:13pm EST
 
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 By John McCrank
 TORONTO, Dec 24 (Reuters) - The Canadian dollar rode a wave
of positive sentiment to close higher against the U.S. dollar
for a seventh straight session on Monday, helped by a rally in
equities markets, higher oil prices and positive news on the
asset-back commercial paper front.
 Canadian bond prices dipped in thin trading as investors
squared positions ahead of the holidays.
 Canadian bond and equities markets closed early on Monday,
at 1:00 p.m. (1800 GMT), and the Bank of Canada gave an
official closing figure for the currency at that time as well.
 The Canadian dollar closed at US$1.0152, valuing each U.S.
dollar at 98.50 Canadian cents, up from US$1.0074, or 99.27
Canadian cents to the U.S. dollar, at Friday's close.
 With many traders, mutual fund managers, and corporate
executives already off for the holidays, the markets were very
thin, and any moves that were made were exaggerated, said
Matthew Strauss, senior currency strategist at RBC Capital
Markets.
 "It seems the move was mainly flow driven, with a few main
players in the market with specific positions."
 But while most of the day's action involved the squaring up
of books ahead of the holidays, there were some fundamentals
supporting the currency as well, Strauss said.
 A rally in the equities markets appears to have boosted
risk appetite in the forex market, as investors moved back into
the carry trade.
 The carry trade refers to the practice of borrowing in a
low-yielding currency, such as the Japanese yen, to buy
higher-yielding assets or currencies, such as the Australian
dollar.
 While Canada's dollar is not considered a high yielder, it
is commodities-based, like the high-yielders, and it often gets
pulled along when carry trade is on.
 The Canadian dollar received further support from robust
oil prices. U.S. crude prices CLc1 reversed earlier losses
and were up around 0.75 percent, adding to Friday's 2.5 percent
gain. Canada is a major oil producer and exporter.
 Analysts also noted that an agreement in principle reached
by a Canadian investor group to restructure about C$33 billion
of nonbank asset-backed commercial paper added a more positive
tone to the Canadian dollar.
 The nonbank ABCP has been frozen since the credit crunch
hit in the summer.
 The deal, which will see much of the existing paper
exchanged for longer-term notes, is expected to close in March,
after all investors have voted on it.
 BONDS LOWER
 Bond prices fell as investors prepared for the yearend and
a rally in equities took away some of the recent safe-haven bid
in government debt.
 "There's not much really driving markets at all, apart from
position-squaring," said Michael Gregory, senior economist at
BMO Capital Markets.
 No Canadian economic data was released, and no more is
scheduled for the rest of the year.
 The two-year bond dipped 4 Canadian cents to C$100.69 to
yield 3.871 percent. The 10-year bond slid 13 Canadian cents to
C$99.27 to yield 4.094 percent.
 The yield spread between the two-year and 10-year bond was
22.3 basis points, unchanged from the previous close.
 The 30-year bond fell 14 Canadian cents to C$114.17 to
yield 4.160 percent. In the United States, the 30-year treasury
yielded 4.623 percent.
 The three-month when-issued T-bill yielded 3.90 percent, up
from 3.88 percent at the previous close.
 (Editing by Peter Galloway)