CANADA FX DEBT-C$ up but pressured by oil, bonds rise

Tue Mar 31, 2009 11:16am EDT
 
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 * C$ recovers as stocks firm, but oil pressures
 * Canada economy shrinks 0.7 pct in Jan., as expected
 * Bonds up moderately as data confirms soft economy
 (Updates with bond movement, additional comments)
 By Ka Yan Ng
 TORONTO, March 31 (Reuters) - The Canadian dollar climbed
against the U.S. currency on Tuesday, spurred by firmer equity
markets and recovering a portion of the previous session's big
losses.
 The threat of bankruptcy at General Motors GM.N and
Chrysler drove the Canadian dollar to almost a two-week low
against the greenback on Monday as the U.S. dollar benefited
from a flight to safety.
 At 9:50 a.m. (1450 GMT), the Canadian unit was at C$1.2590
to the U.S. dollar, or 79.43 U.S. cents, up from C$1.2618 to
the U.S. dollar, or 79.25 U.S. cents, at Monday's close.
 At one point on Tuesday, the Canadian unit rose as high as
C$1.2503 to the U.S. dollar, or 79.98 U.S. cents.
 "As equity markets rally, that tends to lower levels of
risk aversion and it tends to point to a slightly more
optimistic outlook for the markets and the global economy,"
said George Davis, chief technical strategist at RBC Capital
Markets.
 "The Canadian dollar tends to benefit from that type of
backdrop."
 The price of oil turned lower, below $49 a barrel, taking
away some of the support it had given the currency earlier in
the day when it neared $50 a barrel. Canada is a major exporter
of oil and the currency often tracks its movements.
 In economic news, declining manufacturing production led
Canada's economy to shrink 0.7 percent in January from
December, within expectations. [ID:nN31397290]
 Separately, Canadian industrial prices rose in February for
the first time since August, gaining 0.4 percent due to a
weakening currency and increases in petroleum and precious
metals prices. [ID:nN31397459]
 BONDS MODESTLY HIGHER
 Canadian government bond prices were slightly higher across
the curve as the gross domestic product data confirmed the
weakness in the Canadian economy.
 "It's set us up for a pretty hefty decline in the first
quarter, probably the worst quarterly contraction on record,"
said Sal Guatieri, senior economist at BMO Capital Markets, who
estimates at least a 6 percent first-quarter GDP decline.
 "It looks like Q1 growth is coming in worst than the Bank
of Canada anticipated so they'll probably cut rates again in a
few weeks and lay the groundwork for quantitative easing."
 The Bank of Canada has said it would unveil its proposed
framework for so-called quantitative and credit easing --
printing money to buy securities outright on the market -- in
late April. Several other central banks have undertaken such
measures and the Bank of Canada is expected to follow suit to
some degree.
 North American equity markets were on the rise, but had no
dampening impact on bond prices on Tuesday. The appeal of safe
haven government bonds is often curbed when riskier assets such
as stocks are favored.
 The two-year bond edged up 1 Canadian cent to C$100.29 to
yield 1.113 percent. The 10-year bond rose 19 Canadian cents to
C$108.35 to yield 2.799 percent.
 The 30-year bond rose 20 Canadian cents to C$125 to yield
3.583 percent. The U.S. 30-year bond yielded 3.577 percent.
 (Additional reporting by Jennifer Kwan; editing by Peter
Galloway)