TORONTO (Reuters) - The Canadian dollar rose 0.7 percent against the U.S. dollar on Thursday, getting a boost from a “buy North America” bid after U.S. Treasury Secretary Henry Paulson was reported to have suggested a more comprehensive solution to the ongoing financial crisis.
Canadian bond prices fell as a late-session rally in stock market took away the safe haven appeal of government debt.
The Canadian dollar ended the North American session at C$1.0618 to the U.S. dollar, or 94.18 U.S. cents, up from C$1.0688 to the U.S. dollar, or 93.56 U.S. cents, at Wednesday’s close.
The late session rally was sparked by reports that U.S. Treasury Secretary Henry Paulson has talked to congressional leaders about a Resolution Trust Corp-type solution to the financial crisis.
The RTC was created in 1989 to clean up huge losses in the savings and loan industry that had, at the time, been the biggest financial crisis since the Great Depression of the 1930s.
The reports led to a surge in stock markets, which also boosted North American currencies, as Wall Street recorded its strongest day in six years on a rally that largely came in the last hour of the session.
“Right now the market is grasping for anything positive,” said Shane Enright, currency strategist at CIBC World Markets.
“You’ve obviously had a lot of carnage on Wall Street, so I think they’re simply clinging to anything that seems to be a ray of hope at this stage.”
The Canadian dollar came off its low point, of C$1.0711, or 93.36 U.S. cents, as equities started to rally.
The currency had hit its strongest point of C$1.0575, or 94.56 U.S. cents, in the overnight session. That was after a coordinated effort by global central banks, including the Bank of Canada, to pump billions of dollars into the markets in an attempt to free up bank lending.
Canadian bond prices dropped as the big rally in the stock markets took away the safe haven bid for government debt, said Sheldon Dong, fixed income strategist at TD Waterhouse Private Investment.
On the economic data front, Canadian wholesale trade sailed past expectations in July to rise 2.3 percent from June, which was the fifth straight increase. Analysts, on average, had forecast a gain of 0.5 percent in the month.
And Canada’s composite leading indicator climbed 0.2 percent in August from July and showed that household demand continues to be the motor of economic growth in the country. Analysts in a Reuters survey had forecast, on average, no change in the leading indicator in August.
Dong said the market completely ignored the data as it was focused on the financial sector and equities.
The two-year bond fell 13 Canadian cents to C$100.27 to yield 2.622 percent, while the 10-year dropped 75 Canadian cents to C$105.90 to yield 3.525 percent.
The yield spread between the two-year and 10-year bond was 81.9 basis points, down from 87.5 basis points at the previous close.
The 30-year bond slid C$1.70 to C$116.20 for a yield of 4.041 percent. In the United States, the 30-year Treasury yielded 4.181 percent.
The three-month when-issued T-bill yielded 1.50 percent, down from 1.75 percent at the previous close.
Editing by Peter Galloway