August 19, 2009 / 8:44 PM / 11 years ago

CANADA FX DEBT-C$ ends higher as oil prices rally

 * C$ ends at C$1.0956 per US$, or 91.27 U.S. cents
 * Canadian consumer prices fall in July
 * Bond prices flat across curve
 (Updates to session close)
 By Frank Pingue
 TORONTO, Aug 19 (Reuters) - Canada's dollar closed higher
for the second straight session on Wednesday, due largely to a
rally in prices for oil, a key Canadian export, and the ability
of North American equities to close higher.
 The currency started to strengthen alongside a surge in oil
prices after a report showed demand for the commodity could be
recovering in the United States. [ID:nSIN507010]
 The rise in oil prices offset investor worries over the
economic recovery and helped North American stock indexes
rebound from early lows to finish higher.
 "We started the morning with U.S equity futures pointing to
a negative open and it opened deeply in negative territory, but
since then general sentiment has turned around," said Matthew
Strauss, senior currency strategist at RBC Capital Markets.
 "And more specifically for the Canadian dollar was the very
strong rally in oil prices ... that was a major change for the
Canadian dollar today."
 The currency ended the session at C$1.0956 to the U.S.
dollar, or 91.27 U.S. cents, up from C$1.1018 to the U.S.
dollar, or 90.76 U.S. cents, at Tuesday's close.
 Data released earlier in the session showed consumer prices
in Canada fell at the steepest rate in 56 years in the 12
months through July. [ID:nN19463312]
 However, the CPI report did not influence the currency
because it was largely in line with forecasts and did not
change market expectations of Bank of Canada policy action.
 The currency rose as high as C$1.0944 to the U.S. dollar,
or 91.37 U.S. cents, on Wednesday, comfortably off its session
low of C$1.1114 to the U.S. dollar, or 89.98 U.S. cents.
 "There's still a lot of people away in the summer so this
volatility is exaggerated just because liquidity is a little
bit thinner than it normally is," said David Bradley, director
of foreign exchange trading at Scotia Capital.
 Canadian bond prices CABONDT ended mostly flat across the
curve as analysts shrugged off the consumer prices report and
said there was no risk of prolonged deflation.
 The data left little demand for more secure assets like
government debt but also kept dealers from unloading bonds.
 "There hasn't been any significant new event to drive the
market today," said Sheldon Dong, fixed income analyst at TD
Waterhouse Private Investment. "We had a bit of CPI deflation
but that was pretty close to the consensus number."
 Other data showed Canada's composite leading indicator rose
by 0.4 percent in July from June given strong performances by
the housing sector and stock market. [ID:nN19127394] But the
report is not generally a market mover.
 The two-year Canadian bond ended up 3 Canadian cents at
C$99.46 to yield 1.273 percent, while the 10-year bond rose 12
Canadian cents to C$102.82 to yield 3.408 percent.
 The 30-year bond slipped 10 Canadian cents to C$118.40 to
yield 3.908.
 Canadian bonds underperformed their U.S. counterparts
across most of the curve. The Canadian 30-year bond was 38.7
basis points below the U.S. 30-year yield, versus 45.3 basis
points on Tuesday.

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