CANADA FX DEBT-C$ dips despite higher oil, bonds up

Mon Dec 29, 2008 10:17am EST
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 * Canada dollar dips vs U.S. dollar in thin trade
 * Bond prices up across curve
 * Concerns linger about weakening economy
 By Lynne Olver
 TORONTO, Dec 29 (Reuters) - The Canadian dollar was lower
against the U.S. currency on Monday morning as lingering
concerns about the economy outweighed higher stock and
commodity prices.
 Bonds were higher across the yield curve, in line with
gains in the U.S. Treasury market, helped by safe-haven flows
due to rising tensions in the Middle East.
 At 9:41 a.m. (1431 GMT), the currency was at C$1.2196 to
the U.S. dollar, or 81.99 U.S. cents. That was down from its
closing level last Wednesday of C$1.2092 to the U.S. dollar, or
82.70 U.S. cents. Canadian financial markets were closed
Thursday and Friday for the Christmas and Boxing Day holidays.
 With many market players still away for the Christmas
break, the currency shrugged off a couple of its traditional
drivers, gold and oil prices. Crude rose as high as $42.20 a
barrel in New York on Monday after Israel attacked the
Hamas-ruled Gaza Strip, but later pared those gains to trade
around $38.70.
 Still, the Canadian currency could get a lift in the
session, one market participant said.
 "It is lagging because Canada is still seen as a country
that has weakening economics and a dovish central bank," said
Jack Spitz, managing director of foreign exchange at National
Bank Financial in Toronto.
 If Canadian stocks can hold their early gains and crude oil
stabilizes around $40 a barrel, the Canadian currency should
attract higher bids, Spitz said.
 "I would suspect that the Canadian dollar will play some
catch-up today."
 With no major economic data in Canada or the United States
to lend direction this week, Spitz said he expects the North
American currency pair to gyrate within the recent range of
C$1.1980 to C$1.2400, or 80.65 U.S. cents to 83.47 U.S. cents.
 "I think those remain substantial pivots for the next leg
up or down," Spitz said.
 The year-end is in sight, and currency market participants
can look to a variety of potentially market-moving events in
January. On Jan. 20, the Bank of Canada will release its next
interest rate decision; on Jan. 22, the central bank will
follow with an update to its semi-annual Monetary Policy
Report; and on Jan. 27, the federal government is expected to
reveal a stimulus package in the Canadian budget.
 Bond prices were up, following Treasury market gains last
Friday and early on Monday morning.
The Canadian economy is believed to be in recession but the
country's real estate and financial services companies have not
deteriorated to the same degree as those in the United States,
keeping bond yields higher than their U.S. counterparts.
 The two-year bond was up 19 Canadian cents at C$103.11 to
yield 1.107 percent. The 10-year bond climbed 75 Canadian cents
to C$112.67 to yield 2.715 percent.
 The yield spread between the two-year and 10-year bond was
at 171 basis points, up from 161 basis points at the previous
 The 30-year bond rose 90 Canadian cents to C$128.00 to
yield 3.447 percent. In the United States, the 30-year Treasury
yielded 2.588 percent.
 (Reporting by Lynne Olver; Editing by Tom Hals)