February 25, 2009 / 3:13 PM / 9 years ago

CANADA FX DEBT-C$ falls as risk aversion boosts greenback

* C$ falls as equities fail to build on Tuesday’s gains

* Slide in C$ cushioned by rally in oil prices

* Bond prices extend Tuesday slide on supply concerns

By Frank Pingue

TORONTO, Feb 25 (Reuters) - The Canadian dollar turned slightly lower on Wednesday morning due to a modest rebound in the greenback as North American equities turned lower, but earnings reports from Canadian banks this week could give the currency a boost.

With no key Canadian economic data due until the end of the week, the moves in the currency were being dictated largely by the direction in its U.S. counterpart, which rose on its safe-haven status.

“It’s primarily just that the U.S. dollar is reasonably well bid across the board and so dollar/Canada is higher as a consequence,” said Adam Cole, global head of foreign exchange trading at RBC Capital Markets in London.

At 9:35 a.m. (1435 GMT), the Canadian unit was at C$1.2457 to the U.S. dollar, or 80.28 U.S. cents, down from C$1.2433 to the U.S. dollar, or 80.43 U.S. cents, at Tuesday’s close.

Helping to cushion the commodity-linked Canadian dollar’s slide was a rise in oil prices to above $40 a barrel, which extended their 4 percent rally in the previous session.

The move in the Canadian currency did not draw much concern among traders as it came on the heels of a 0.6 percent rally in the previous session when North American equities surged and prices for oil, a key Canadian export, rose.

Also, traders said the Canadian dollar may get a boost later this week as Canadian banks start to report quarterly earnings. Canadian banks stand to benefit from comparison with problem-plagued U.S. banks, they said.

“Given that Canadian banks still generally appear to be performing quite well relative to the banking sector in the rest of the world it does highlight one of the positive facets of the Canadian dollar at the moment,” Cole said.

“So if anything domestic influence is probably positive through the financial sector while the macro news is pretty thin this week.”

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.

BONDS PRICES KNOCKED DOWN

Canadian bond prices extended their slide from the previous session as the lack of any Canadian economic data to spark a move left prices to fall alongside the bigger U.S. Treasury market due to nagging concerns about supply.

The current account balance data due out at the end of the week is not expected to have a huge impact on the bond market as it will be followed by gross domestic product figures on Monday, which are expected to show the Canadian economy shrank during the fourth quarter of 2008.

That will be followed by the Bank of Canada’s interest rate announcement on March 3, when some expect the central bank to cut its key interest rate by a half point to 0.50 percent.

The interest-rate sensitive two-year bond was down 2 Canadian cents at C$102.68 to yield 1.205 percent, while the 10-year bond dropped 20 Canadian cents to C$111.00 to yield 2.886 percent.

The 30-year bond shed 35 Canadian cents to C$124.30 to yield 3.619 percent. (Editing by Peter Galloway)

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