January 27, 2009 / 3:25 PM / 11 years ago

CANADA FX DEBT-C$ weakens ahead of federal budget

* C$ weaker after rising four straight sessions

* Market awaits federal budget at 4 p.m. (2100 GMT)

* Bonds mixed, follow U.S. Treasuries

By Jennifer Kwan

TORONTO, Jan 27 (Reuters) - The Canadian dollar weakened versus the U.S. currency on Tuesday, as the price of oil and other commodities slipped and the market braced for a federal budget expected to include stimulus measures to boost the economy.

The weakness comes after four straight sessions of strength versus the greenback on largely firmer commodity prices and easing risk aversion.

Canadian bond prices were mixed on Tuesday, making some gains at the long end after recent pressure due to persistent concern about swelling supply.

At 9:31 a.m. (1431 GMT), the Canadian dollar was at C$1.2290 to the U.S. dollar, or 81.37 U.S. cents, down from C$1.2241 to the U.S. dollar, or 81.69 U.S. cents, on Monday.

The currency is expected to track equity and commodity markets ahead of the Canadian budget, said George Davis, chief technical strategist at RBC Capital Markets.

The budget is scheduled to be released at 4 p.m.

“How we’re going to trade leading into the budget will largely be determined by how equity markets and commodity markets do because those have been the two of the factors that have been driving the price action in the currency of late,” he said.

But all eyes will be on the budget for further details on the federal government’s stimulus measures. As well, the market will look for indications of whether the budget is supported by the opposition parties, economists and strategists say.

“If we get the opposition basically on side, and there’s no disruptions to the process, then I think it’ll be status quo for the currency,” said Davis.

“If by chance, the opposition comes out and indicates they can’t support it and it indicates that we might go to a confidence vote then I think we could see some short-term weakness in the currency only because the uncertainty it would bring to the market.”

The budget is expected to usher in the country’s first deficit in about a decade as the Conservative government boosts spending to spur the economy.

Late last week, a government official told reporters that deficits over the next two fiscal years would total C$64 billion.

The currency was knocked lower by weakness in the price of crude CLc1, which fell below $45 a barrel as the market began to anticipate data showing rising inventories. [ID:nSP178421] Gold and most base metals were also lower. [ID:nLR469501]

Also on Tuesday, Bank of Canada Governor Mark Carney is due to deliver a speech in Halifax, Nova Scotia, on inflation.

Unless he says anything “shockingly new,” his remarks are likely to be overshadowed by anticipation of the budget, said Davis.


Canadian bond prices were mixed, following the U.S. market, which rebounded after recent losses stemming from worries about a large amount of government debt issuance expected this year. [ID:nN27438682]

Dealers have fled U.S. bonds on concerns about the impact of the large amount of new debt that is expected to be issued in the United States in coming years to fund government programs to stimulate the economy.

The two-year bond fell 2 Canadian cents to C$102.58 to yield 1.325 percent, while the 10-year bond was up 18 Canadian cents to C$110.93 to yield 2.905 percent.

The 30-year bond climbed 60 Canadian cents to yield 3.693 percent. In the United States, the 30-year Treasury yielded 3.3328 percent. (Reporting by Jennifer Kwan; Editing by Frank McGurty)

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