January 27, 2009 / 10:29 PM / 11 years ago

CANADA FX DEBT-C$ weaker; little changed after budget

* C$ weaker after rising for four straight sessions

* Currency unchanged after release of federal budget

* Bonds mostly higher, follow U.S. market

By Jennifer Kwan

TORONTO, Jan 27 (Reuters) - The Canadian dollar weakened slightly against the U.S. currency on Tuesday, pressured by sagging oil and metal prices, while the federal government’s budget had little impact on the currency.

The weakness followed four straight sessions of gains against the greenback, largely due to firmer commodity prices and easing risk aversion.

Canadian bond prices were largely higher on Tuesday, following the U.S. Treasury market higher after recent pressure due to persistent concern about swelling supply.

The Canadian dollar officially closed at C$1.2263 to the U.S. dollar, or 81.55 U.S. cents, down from C$1.2241 to the U.S. dollar, or 81.69 U.S. cents, on Monday.

Shortly after 4 p.m. (2100 GMT), the Conservative government unveiled a budget and stimulus package that promised billions in tax cuts and spending to help pull the economy out of recession, laying out plans for a budget deficit for the first time after 11 straight years of surplus. [ID:nN27408307]

The official release of the budget had a negligible impact on the Canadian currency, said Shane Enright, currency strategist at CIBC World Markets.

“The news was very well telegraphed,” said Enright.

Beginning late last week, government officials began unveiling details of the budget, a rare move that analysts said was aimed at preparing markets for the fiscal plan.

“I think probably the bigger potential reaction for the currency would be when we get a sense of if the Liberals are willing to stand behind (the budget),” said Enright.

“You won’t get, necessarily, currency strength should they come out and support it. My guess is you’d probably get some currency weakness if they don’t.”

The commodity-tied currency came under some pressure from the price of crude CLc1, which settled lower at $41.58 a barrel on demand concerns. [ID:nSP178421] Gold and most base metals were also lower. [ID:nLR469501]

The currency felt little impact from a speech by Bank of Canada Governor Mark Carney, who tried to allay fears that Canada may be headed into a deflationary spiral after the bank projected falling prices in the second and third quarters of this year. [ID:nN27455580]

There were no major surprises in Carney’s speech, said Charmaine Buskas, senior economics strategist at TD Securities.

“It’s just a reminder that the Canadian economy is under pressure and that inflation is poised for softness in the near term,” Buskas said.


Canadian bond prices were largely higher, following the U.S. market, which made gains as demand concerns eased after a successful auction. [ID:nN27459457]

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 to fund government programs to stimulate the economy.

Also in unveiling the budget, the Canadian government said on Tuesday it would reintroduce the three-year bond, last issued in 1996-97, as it seeks to raise C$101 billion in fiscal 2009-10. [ID:nCFB000068]

The two-year bond slipped 1 Canadian cents to C$102.59 to yield 1.319 percent, while the 10-year bond was up 15 Canadian cents to C$110.90 to yield 2.908 percent.

The 30-year bond climbed 85 Canadian cents to yield 3.680 percent. In the United States, the 30-year Treasury yielded 3.2399 percent. (Reporting by Jennifer Kwan; editing by Rob Wilson)

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