* C$ pares gain to $1.0207
* Bond prices slide as risk appetite gains
* Canada government hit with formal contempt charge
* Budget could decide fate of government
(Updates to close)
TORONTO, March 21 (Reuters) - The Canadian dollar
closed higher against the U.S. currency on Monday but off the
day's high as resurgence in risk appetite around the world
outgunned worries about the possibility of a spring election in
A special parliamentary committee declared Canada's
minority government to be in contempt, which the market saw as
a possible election trigger and a harbinger of possible market
The committee, however, stopped short of trying to bring
down the governing Conservatives in Parliament over the
contempt finding. It ruled the government had wrongly withheld
information about the cost of a program to increase the number
of prison cells. [ID:nN218894]
"You're getting all these things that are lining up to be
potential Canadian dollar negatives. Here's the first one,"
said John Curran, senior vice president at CanadianForex.
The Canadian dollar fell about 30 ticks to as low as C$0.98
as the minority Conservative government looks set to face at
least two parliamentary confidence votes this week and the
chances of it surviving beyond Friday are uncertain at best.
A second risk lies with Finance Minister Jim Flaherty's
budget, due on Tuesday at 4 p.m. (2000 GMT). It is likely to
show that Ottawa is cutting its deficit and may contain a
sprinkling of targeted measures to bolster economic recovery.
Still, the currency was up from Friday's close, rebounding
from last week's sell-off against its U.S. counterpart,
bolstered by firm commodity prices and developments in
strife-torn Libya and quake-stricken Japan.
It closed at C$0.9797 to the U.S. dollar, or $1.0207, up
from Friday's North American finish of C$0.9861 to the U.S.
dollar, or $1.0141. Earlier, it had risen as high as C$0.9750
to the U.S. dollar, or $1.0256, it highest point in almost a
Oil, a key driver for the commodity-linked Canadian dollar,
rose following a wave of United Nations-mandated airstrikes on
Libya and as unrest in the Middle East fueled worries about the
region's oil supply. For more see [O/R] and [ID:nLDE72J0RL].
Concerns about a nuclear power station crisis in Japan
eased somewhat, lifting market sentiment.
"Canada is doing well overall but these recent events may
provide some uncertainty and weaken off Canada in the medium
term," Curran said. "Longer term, Canada should outperform. We
may just need to go through a few bumps in the road
Canadian bond prices fell across the curve, in step with
U.S. Treasury prices, which dipped as risk appetite improved on
the Libya and Japan situations, and pushed investors towards
stocks and other riskier assets. [US/]
"Those were the two things that were driving markets today
globally," said Sheldon Dong, fixed income analyst at TD
Waterhouse Private Investment. "It was risk-on session."
On Tuesday, well before Canada's federal budget is
announced, market players will get a look at retail sales data
for January to find clues on how well the Canadian economy is
faring and refine expectations on when the Bank of Canada might
raise interest rates for the first time this year. The leading
indicator for February is also due.
Primary dealer forecasts for the timing of the bank's next
rate increase were largely split between its May 31 and July 19
policy announcement dates, according to a Reuters poll last
week. Market pricing, however, is currently betting on
The interest rate-sensitive two-year bond
dropped 14 Canadian cents to yield 1.678 percent, while the
10-year bond was down 33 Canadian cents to yield
(Reporting by Ka Yan Ng; editing by Peter Galloway)