April 22, 2009 / 8:44 PM / in 9 years

CANADA FX DEBT-C$ ends slightly lower in volatile session

* Canadian dollar ends at 80.65 U.S. cents

* Bond prices mixed across the curve

* Market focus on Thursday’s Monetary Policy Report (Adds details, quote)

By Jennifer Kwan

TORONTO, April 22 (Reuters) - The Canadian dollar was slightly lower against the U.S. dollar on Wednesday, after tracking equity and oil markets through a volatile session, as investor were reluctant to make major bets ahead of a key Bank of Canada report.

The market is expected to pay close attention to the central bank’s Monetary Policy Report, due on Thursday morning, which will outline a potential framework for unconventional policy measures, such as printing money to buy securities, often referred to as quantitative easing.

“Tomorrow is a very significant day for the Canadian economy and the Canadian dollar because, depending on what the bank says in terms of what position, or framework, it would adopt for unconventional monetary policy that would have implications for the Canadian dollar,” said Millan Mulraine, economics strategist at TD Securities.

The Canadian dollar finished at C$1.2400 to the U.S. dollar, or 80.65 U.S. cents, down from Tuesday’s finish at C$1.2363 to the U.S. dollar, or 80.89 U.S. cents.

The currency, which touched an early low of C$1.2477 to the U.S. dollar, or 80.15 U.S. cents swung higher by midday as North American stock markets rebounded from a tentative start and climbed along with commodity prices.

The Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE shot up more than 1 percent higher at one point. But within the last hour of the session, the TSX gave back nearly all its gains, while the Dow slid back into into negative territory as investors’ upbeat mood returned to caution.

“What we are seeing today is a reflection of what we’ve been seeing over the past few months. The Canadian dollar is a really a play on North American and global equity markets,” said Benjamin Tal, senior economist CIBC World Markets.

Wednesday’s moves mirrored Tuesday’s action when the currency rebounded in tandem with equity markets. It had earlier touched a three-week low after the Bank of Canada cut its key overnight rate to a historic low of 0.25 percent and predicted a deeper recession than previously forecast. [ID:nN21297335] [ID:nN21480852]

BONDS MIXED

Bond prices were mixed after the Bank of Canada’s announcement on Tuesday, with the rate cut boosting the short end of the curve and the long end slightly lower on concerns the central bank’s aggressive easing could fuel inflation in the long term.

“You have two opposing forces influencing the bond market,” said Tal.

Bond prices were also influenced by the bigger U.S. market, where bond prices eased as stocks climbed during the day, denting the appeal of safer government debt. [ID:nNYD000479]

The two-year Canada bond was up 6 Canadian cents at C$100.52 to yield 1.002 percent, while the 10-year bond fell 27 Canadian cents to C$107.06 to yield 2.937 percent.

The 30-year bond pulled back 60 Canadian cents to C$122.00 to yield 3.730 percent. In the United States, the 30-year treasury yielded 3.8073 percent.

Canadian bonds mostly outperformed their U.S. counterparts across the curve, with the 30-year bond yield 7.70 basis points below its U.S. counterpart, compared with about 5 basis points below on Tuesday. (Reporting by Jennifer Kwan; editing by Rob Wilson)

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