November 25, 2009 / 4:58 PM / 8 years ago

CANADA FX DEBT-C$ hits 1-week high; Russia central bank boosts

4 Min Read

* Touches high of C$1.0450 to U.S. dollar

* Russian central bank says to buy C$s (Adds further analyst comment, background)

By Frank Pingue and Jeffrey Hodgson

TORONTO, Nov 25 (Reuters) - Canada's dollar hit a one-week high after Russia's central bank said on Wednesday it wants to invest some of its reserves in the currency, suggesting the Canadian unit could benefit from diversification away from the U.S. dollar.

The currency was also boosted by gold's rise to a record high, steady prices for oil and other commodities, and renewed hunger for riskier assets. [GOL] [O/R]

The currency at one point rallied as high as C$1.0450 to the U.S. dollar, or 95.69 U.S cents, matching the high it reached on Nov. 18.

"(This) plays into the theme of central banks diversifying out of greenbacks and looking for possibly safer havens, and Canada looks relatively well compared with some other countries," said Sal Guatieri, senior economist at BMO Capital Markets.

At 11:37 a.m. (1625 GMT), the currency was at C$1.0501 to the U.S. dollar, or 95.23 U.S. cents. It closed at C$1.0580 to the U.S. dollar, or 94.52 U.S. cents, on Tuesday.

Russia's central bank said it is preparing to invest some of its foreign exchange reserves in Canadian dollars to diversify its portfolio. [ID:nGEE5AO19O]

The move helped push the U.S. dollar to a 15-month low against a basket of currencies. .DXY. [USD/]

The Russian move comes as officials in other countries, including China, have voiced concern about the prospect of extended greenback weakness. Most central banks hold large amounts of U.S. dollars because of its role as the global reserve currency.

There is speculation these central banks, along with other big dollar holders like sovereign wealth funds, could diversify by selling dollars to buy other currencies such as euros, sterling, yen, or commodity-linked plays like Canada, Australia and New Zealand.

"(It's) quite a headline for Canada in terms of having Russia, who holds a massive amount of reserves, target specifically Canada." said Steve Butler, director of foreign exchange trading at Scotia Capital.

"The whole reserve diversification story has been a major theme as the U.S. dollar has continued to weaken. The U.S. dollar still looks like it is going to remain under a lot of pressure ... until we see start to see some action from the Fed in terms of higher rates."

Canadian Bonds Outperform

Canadian bonds were little changed to firmer, outperforming U.S. Treasury issues, which were hurt by some stronger than expected economic data. [US/]

The two-year Canadian government bond CA2YT=RR rose 5.5 Canadian cents at C$100.19 to yield 1.154 percent, while the 30-year bond CA30YT=RR was up 8 Canadian cents at C$119.38 to yield 3.851 percent.

The Canadian 10-year bond yield was 5 basis point below its U.S. counterpart, compared with 3 basis points below on Tuesday.

In economic news, Canadian home resale prices rose for a fifth straight month in September on gains in five of six major metropolitan markets surveyed, according to a report on Wednesday. [ID:nN25349607] (Additional reporting by Scott Anderson; editing by Rob Wilson) ((jeffrey.hodgson@thomsonreuters.com; 416 941 8099; Reuters Messaging: jeffrey.hodgson.reuters.com@reuters.net))

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