January 7, 2009 / 9:46 PM / in 11 years

CANADA FX DEBT-C$ slumps on oil, U.S. economic gloom

 * C$ falls from two-month high as oil tumbles 12 percent
 * Bond prices flat at short end; U.S. data disappoints
 * Longer-term government debt down on supply concerns
 By Jennifer Kwan
 TORONTO, Jan 7 (Reuters) - The Canadian dollar fell against
the U.S. currency on Wednesday as the price of oil tumbled 12
percent on a buildup in inventory and as bleak U.S. employment
data raised concerns about a deeper recession.
 Bonds were flat on the short end of the curve as the ADP
private sector employment data showed U.S. employers cut more
jobs in December than expected.
 Employers shed 693,000 jobs, up sharply from the revised
476,000 lost in November. [ID:nN07470568]
 The longer end of the curve was lower on persistent supply
 The Canadian currency finished at C$1.1971 to the U.S.
dollar, or 83.54 U.S. cents, down from C$1.1828 to the U.S.
dollar, or 84.55 U.S. cents, on Tuesday.
 After a relatively strong start to the year, the currency
market got a "smack of reality" with the U.S. data, said David
Watt, senior currency strategist, RBC Capital Markets.
 "We're still getting reports that are worse than expected.
That sort of shows the economy is still slowing down," Watt
said. "We're still in an environment where there is a great
deal of uncertainty over the economic outlook."
 After Wednesday's U.S. figures, investors were bracing for
Friday's release of December employment data from both sides of
the border.
 The market expects Canada to have shed 22,000 jobs in
December. That would follow a loss of 70,600 jobs in November.
 Another factor weighing on the loonie was a big drop in the
price of oil CLc1, which settled at $42.63, down 12.25
percent as a bigger than expected buildup in inventories fueled
demand concerns. [ID:nL7335836]
 In recent sessions, oil had been buoyed by rising
geopolitical worries, which helped to boost the Canadian
currency to a two-month high on Tuesday.
 Fluctuations in the oil price often sway the currency as
Canada is a major oil producer and exporter.
 For the most part, the domestic bond market mimicked U.S.
Treasuries, which remained under pressure on persistent
concerns about swelling supply after a weak auction on
three-year notes. [ID:nNYG001450]
 "There's some concern that both large sizes of auctions and
frequent auctions may, at least temporarily, cause yields to
remain high," said Mark Chandler, fixed income strategist at
RBC Capital Markets.
 The two-year bond was flat at C$103.00 to yield 1.143
percent, while the 10-year bond drooped 55 Canadian cents to
C$110.75 to yield 2.931 percent.
 The yield spread between the two-year and 10-year bond was
176 basis points, versus 175 at the previous close.
 The 30-year bond fell C$1.35 to yield 3.704 percent. In the
United States, the 30-year treasury yielded 3.0363 percent.
 (Reporting by Jennifer Kwan; editing by Rob Wilson)

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