May 10, 2010 / 12:06 PM / in 10 years

CANADA FX DEBT-Canadian dollar jumps 2 pct after Europe aid deal

 * Canadian dollar at 97.80 U.S. cents
 * Bond prices unwind steeply
 * European Union and IMF agree to massive rescue plan
 * Bank of Canada to reestablish Fed swap agreement
 By Ka Yan Ng
 TORONTO, May 10 (Reuters) - The Canadian dollar jumped more
than 2 percent against the U.S. dollar on Monday as market
confidence was renewed after policymakers agreed to an
emergency aid package to stabilize European sovereign debt
 The currency CAD=D4 steadily climbed, hitting a session
high of C$1.0211 to the U.S. dollar, or 97.93 U.S. cents, as
the North American session got underway, joining other riskier
assets that were on the rise.
 European central banks began buying euro zone government
bonds under a $1 trillion global emergency rescue package,
sending world stocks nearly 3 percent higher, the euro up 2
percent on the U.S. dollar and narrowing yields on corporate
and peripheral euro zone debt. U.S. stock futures also pointed
to a strong start. [MKTS/GLOB]  [nTOPNOW2]
 "Canada is a beneficiary of a bid to all risk markets. The
plan is audacious in a go-big or go-home kind of way," said   
Jack Spitz, managing director of foreign exchange at National
Bank Financial.
 "So short-term, clearly the cause and effect has created a
bid for a number of asset classes, but longer term it remains
to be seen whether this is sustainable."
 The Bank of Canada said it would reestablish a US$30
billion currency swap agreement with the U.S. Federal Reserve
in response to liquidity pressures in European markets.
 The facility was part of a broader move by the Bank of
England, the European Central Bank, the Fed and the Swiss
National Bank to prevent the  spread of funding strains to
other countries, the central bank said in a statement.
 At 7:45 a.m. (1145 GMT), the Canadian dollar was at
C$1.0225 to the U.S. dollar, or 97.80 U.S. cents, up sharply
from C$1.0438 to the U.S. dollar, or 95.80 U.S. cents, at
Friday's close.
 The aid package helped the Canadian dollar recover part of
its 2.8 percent slide from the week before, the steepest weekly
drop since October.
 Housing starts for April was the only set of of Canadian
data on tap, due at 8:15 a.m. (1215 GMT), and is expected to
show a rise to 205,000 units of new home construction from
197,300 in March. ECONCA
 Canadian government bond prices sagged across the curve as
safe haven assets fell out of favor in the wake of the aid
 The two-year government bond CA2YT=RR dropped 27 Canadian
cents to C$99.10 to yield 1.949 percent, while the 10-year bond
CA10YT=RR shed 80 Canadian cents to C$99.15 to yield 3.602
 (Reporting by Ka Yan Ng, Editing by Chizu Nomiyama)

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