CANADA FX DEBT-C$ hits one-week high after retail sales data

Tue Nov 25, 2008 10:35am EST
 
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 * C$ gets lift from unexpected gain in retail sales
 * Currency now up 4.5 percent from end of last week
 * Bond prices rally alongside U.S. Treasuries
 By Frank Pingue
 TORONTO, Nov 25 (Reuters) - The Canadian dollar rose to its
highest in over a week on Tuesday as unexpectedly strong
domestic retail sales data and a fresh U.S. program to help
promote lending dulled the greenback's safe-haven status.
 Domestic bond prices rebounded from losses suffered in the
previous session and were higher across the curve given some
weak U.S. economic data and market views that the recent stock
market rally may have lost steam.
 At 10:00 a.m. (1500 GMT), the Canadian unit was at C$1.2225
to the U.S. dollar, or 81.80 U.S. cents, up from C$1.2345 to
the U.S. dollar, or 81.00 U.S. cents, at Monday's close.
 The domestic currency's rally also followed economic data
that showed retail sales in Canada were unexpectedly strong in
September and more than offset a decline in sales in August.
 But the retail sales data may not be enough to support the
Canadian currency given the economy's likely performance in
October when financial markets around the world plummeted.
 "A lot of the data that looks back two or three months is
largely being being pushed aside, especially if it is positive,
because the market is looking at things and saying we know we
are potentially in a recession," said George Davis, chief
technical strategist at RBC Capital Markets.
 A number of the country's biggest banks have forecast in
recent months that Canada will slip into recession, and earlier
this week Canadian Finance Minister Jim Flaherty said it is
reasonable to expect the economy could soon fall into
recession.
 The Canadian dollar is up 4.5 percent this week after two
weeks of decline in which it shed a total of 7 percent.
Earlier, it rose to C$1.2126 to the U.S. dollar, its highest
since Nov. 17.
 Davis said one of the drivers behind the currency's latest
rally was a multibillion U.S. program to buy mortgage-related
debt and increase the availability of lending of auto loans,
student loans and credit cards.
 The plan's announcement contributed to a further easing of
the extreme risk aversion and repatriation of funds that has
driven the U.S. dollar sharply higher in recent weeks.
 BONDS REBOUND
 Canadian bond prices rallied along with the bigger U.S.
Treasury market after data showed the U.S. economy had
contracted in the third quarter more than previously estimated,
reinforcing the impression that a recession is under way.
 Nagging fears about the unfolding credit crisis and the
slowdown in the global economy also lent support to bond
prices.
 The Canadian overnight Libor rate LIBOR01 was 2.2583
percent, up from 2.3166 percent on Monday.
 Monday's CORRA rate CORRA= was 2.2472 percent, up from
2.2430 percent on Friday. The Bank of Canada publishes the
previous day's rate at around 9 a.m. daily.
 The two-year bond was up 9 Canadian cents at C$101.92 to
yield 1.780 percent. The 10-year bond rose C$1.05 to C$107.05
to yield 3.376 percent.
 The yield spread between the two-year and 10-year bond was
171 basis points, up from 166 at the previous close.
 The 30-year bond jumped C$2.00 to C$117.60 to yield 3.964
percent. In the United States, the 30-year Treasury yielded
3.589 percent.
 (Reporting by Frank Pingue; Editing by Frank McGurty)