August 12, 2009 / 8:28 PM / 11 years ago

CANADA FX DEBT-C$ ends higher, spurred by oil, equity rises

 * C$ charges off overnight low of C$1.1077
 * Canada's trade deficit shrinks in June
 * Bond prices stuck lower across curve
 By Frank Pingue
 TORONTO, Aug 12 (Reuters) - Canada's currency closed higher
versus the U.S. dollar on Wednesday, snapping a four-day skid,
as rises in oil prices and North American stocks helped renew
interest in riskier currencies.
 The Canadian dollar handed back some of its gains after the
U.S. Federal Reserve said it would slow the pace of its program
to purchase long-term debt, but the currency reclaimed the bulk
of that drop and secured a comfortably higher close.
 "What we're seeing is a reversal of the past couple trading
sessions where we saw risk off and U.S. dollar bid scenarios no
matter what was coming out," said Firas Askari, head of foreign
exchange trading at BMO Capital Markets.
 The Canadian dollar closed at C$1.0884 to the U.S. dollar,
or 91.88 U.S. cents, up from C$1.1015 to the U.S. dollar, or
90.79 U.S. cents, on Tuesday.
 That was also up from the overnight low of C$1.1077 to the
U.S. dollar, or 90.28 U.S. cents, which was the currency's
lowest level in three weeks.
 But Askari noted that there is very little liquidity in the
market given the generally quiet August trading period, which
he said was likely contributing to the big swings in direction
for the Canadian dollar.
 It took a sharp swing lower around mid-afternoon after the
Fed said the U.S. economy was showing signs of leveling out
after 20 months of recession [ID:nN12462568]
 The bulk of the Canadian dollar's latest rise came during
the first half of the North American session, when it rose to
C$1.0848 to the U.S. dollar, or 92.18 U.S. cents.
 "Judging by the moves that happened earlier this morning it
seemed like there was just a couple of involved sellers (of the
U.S. dollar)," said David Bradley, director of foreign exchange
trading at Scotia Capital.
 "I don't know if it was M&A related or what, but it seemed
like a couple of Canadian banks were the main sellers of the
U.S. dollar and buyers of the Canadian dollar."
 Also aiding the domestic currency's rise was data that
showed Canada's trade deficit came in at a much smaller than
expected C$55 million in June, compared with C$1.1 billion in
May. [ID:nN12380828]
 Canadian bond prices ended higher at the short end of the
curve as the Fed said it would keep its short-term interest
rate steady near zero for an extended period, but the long end
of the curve eased on the Canadian trade data.
 "The trade numbers are somewhat favorable for growth and
therefore we had equities rallying as well and that all put a
negative tone and pushed ... up yields at the long end," said
Michael Gregory, senior economist at BMO Capital Markets.
 Gregory also said the short end of the curve rose alongside
shorter-dated U.S. Treasuries as any hope that the Fed could
raise interest rates early next year faded after its statement
showed it was in no hurry to do anything to change policy.
 The two-year Canadian bond ended up 5 Canadian cents at
C$99.35 to yield 1.325 percent, while the 10-year bond slipped
14 Canadian cents to C$101.91 to yield 3.517 percent.
 The 30-year bond dropped 25 Canadian cents to C$116.70 to
yield 3.999. In the United States, the 30-year bond yielded
4.523 percent.
 Canadian bonds outperformed their U.S. counterparts across
most of the curve. The Canadian 30-year bond was about 52 basis
points below the U.S. 30-year yield, versus 45.4 basis points
below on Tuesday.
 (Editing by Peter Galloway)

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