CANADA FX DEBT-C$ falls on Canadian political uncertainty

Fri Nov 28, 2008 9:00am EST
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 * Canadian dollar falls 0.7 percent versus greenback
 * Opposition threat's to topple gov't raises uncertainty
 * Fears of weak U.S. holiday sales spur rise in bonds
 By John McCrank
 TORONTO, Nov 28 (Reuters) - The Canadian dollar fell
against the U.S. dollar on Friday as the possibility of a
second federal election in three months raised uncertainty
among investors about the government's focus on dealing with
the financial crisis.
 Canadian bond prices were flat to higher as fears of weak
U.S. holiday sales had investors on the defensive, spurring a
flight to safe-haven government debt.
 At 8:12 a.m. (1312 GMT), the Canadian dollar was at
C$1.2392 to the U.S. dollar, or 80.70 U.S. cents, down from
C$1.2311 to the U.S. dollar, or 81.23 U.S. cents, at Thursday's
 The Canadian government released its fiscal update after
market close on Thursday. It said Canada's economy was sliding
into recession into the fourth quarter, but that the federal
budget should be balanced in the current fiscal year and
 Canada's three opposition parties said they would reject
the update, saying it failed to produce a plan to combat the
financial crisis or aid the auto sector.
 If all three opposition parties vote against the package on
Monday, the country faces the prospect of a second election in
just three months or the creation of the country's first ever
coalition administration.
 Also under fire was a plan to end a key subsidy to
political parties, which was seen hurting the opposition much
more than the ruling Conservatives.
 "When you've got a government which is basically, when they
talk about the opposition parties, that there's been a
declaration of war in parliament, it's not necessarily a good
thing for the currency right now," said David Watt, a senior
currency strategist at RBC Capital markets.
 "A lot of investors are rewarding governments that are
showing strong leadership on the financial crisis and it looks
like we're (Canada) going to be thrown into disarray."
 Canadian bonds rose were mostly higher over fears of anemic
U.S. holiday sales, which added to the financial worries and
sent investors to safe-haven government debt.
 "You're hearing a lot of talk about how dismal U.S. holiday
sales are shaping up to be and there's a lot of focus on what
will happen today, black Friday, in the U.S.," said Sal
Guatieri, senior economist at BMO Capital Markets.
 "Another report suggests that even with the most aggressive
 discounting in decades, people could very well just stay home
and keep their wallets shut."
 The Canadian overnight Libor rate LIBOR01 was 2.5000
percent, up from 2.4417 percent on Thursday.
 The two-year bond was flat at C$102.02 to yield 1.717
percent. The 10-year bond gained 20 Canadian cents to C$107.45
to yield 3.328 percent.
 The yield spread between the two-year and 10-year bond was
176 basis points, down from 177 at the previous close.
 The 30-year bond climbed 40 Canadian cents to C$118.60 to
yield 3.911 percent. In the United States, the 30-year Treasury
yielded 3.496 percent.
 (Reporting by John McCrank)