May 11, 2009 / 8:29 PM / 11 years ago

CANADA FX DEBT-C$ closes lower after hitting 6-month high

 * C$ hits overnight high of 87.14 U.S. cents
 * Drop in stock markets and oil prices spark retreat
 * Bond prices rebound after recent skid
 By Frank Pingue
 TORONTO, May 11 (Reuters) - The Canadian currency's latest
rally stalled on Monday as the appetite for risk that had sent
it to a six-month high overnight evaporated as oil and equities
prices, key drivers of the move, fell.
 Since hitting a four-year low in early March, the Canadian
dollar has rallied as much as 14 percent, driven by a
combination of upbeat economic data, a rise in equities and oil
prices, and improved sentiment about the global economy.
 But the currency stepped back on Monday as the price of
oil, a key Canadian export, fell, as did equities, which
boosted the appeal of the safe-haven U.S. dollar.
 "It's come a long way in a short period of time and
technical indicators are overdone -- they have been for a few
days now at least -- so I wouldn't be surprised to see a little
bit more retracement," said John Curran, senior vice president
at CanadianForex, a commercial foreign exchange dealing firm.
 "Everyone is looking at the equities and how the markets
are paring back on positions that have turned out favorable for
them in the last few weeks."
 Canada's currency rallied overnight to C$1.1476 to the U.S.
dollar, or 87.14 U.S. cents, its highest level since Nov. 5, in
a move pegged to follow-through from Friday, when North
American jobs data came in stronger than expected and boosted
risk appetite.
 But its momentum stalled in the North American session and
it retreated to close at C$1.1658 to the U.S. dollar, or 85.78
U.S. cents, down from C$1.1497 to the U.S. dollar, or 86.98
U.S. cents, at Friday's close.
 Toronto's key stock market index ended down 1.4 percent
while the Dow Jones industrial average slipped 1.8 percent.
 The next economic indicators that could influence the
Canadian dollar are Tuesday's international merchandise trade
report for March and Friday's manufacturing survey.
 Canadian bond prices snapped a recent skid and closed
higher across the curve as the weakness in equities boosted the
appeal of more secure government debt.
 "It's just a bounce-back from last Friday ... as stocks
seem to be losing a bit of momentum," said Sheldon Dong, fixed
income analyst at TD Waterhouse Private Investment.
 Dong said Canadian bonds rallied alongside the bigger U.S.
Treasury market, which got a boost as the U.S. Federal Reserve
bought $3.5 billion worth of Treasuries as part of its plan to
keep borrowing costs low. [ID:nN11527919]
 The benchmark two-year Canadian government bond ended up 8
Canadian cents at C$100.33 to yield 1.089 percent, while the
10-year bond rallied 50 Canadian cents to C$105.50 to yield
3.109 percent.
 The 30-year bond was rose 80 Canadian cents to C$118.90 to
yield 3.888 percent.
 Canadian bonds underperformed their U.S. counterparts
across most of the curve. The 30-year bond yield was about 29
basis points below the U.S. 30-year yield, compared with around
34 basis points below on Friday.
 (Editing by Peter Galloway)

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