August 28, 2009 / 8:49 PM / 11 years ago

CANADA FX DEBT-C$ dragged lower by Canada bond plan

 * Currency ends week down 0.9 percent at 91.58 U.S. cents
 * Ottawa plans U.S. dollar global bond issue
 * Bond prices rally off lows, end flat
 (Updates to session close)
 By Frank Pingue
 TORONTO, Aug 28 (Reuters) - The Canadian dollar finished
lower against the greenback on Friday given investor
uncertainty over the Canadian government's surprise plan to
sell $3 billion in U.S. dollar bonds.
 The bulk of the currency's latest slide came after news of
Ottawa's plan to enter into a foreign currency global bond
issue for the first time in more than a decade to supplement
foreign exchange reserves. [ID:nN28386471]
 "I don't think there is necessarily much to it, but markets
are so thin and whippy nowadays that things which you'd think
should largely be overlooked tend to be overanalyzed and this
is one of those situations," said David Watt, senior currency
strategist at RBC Capital Markets.
 "So that weighed on (the Canadian dollar) to an extent, but
again sentiment has just been very whippy and very erratic."
 The Canadian dollar closed at C$1.0919 to the U.S. dollar,
or 91.58 U.S. cents, down from C$1.0856 to the U.S. dollar, or
92.11 U.S. cents, at Thursday's close.
 That was well off the session high reached early on Friday
when the currency drew momentum from the previous day's gain
and a rally in oil prices to reach C$1.0791 to the U.S. dollar,
or 92.67 U.S. cents.
 Thin trading conditions ahead of the weekend, coupled with
month-end flows, likely contributed to an exaggerated move in
the currency and its wide range for the session.
 Data released early in the session showed Canada's current
account deficit ballooned in the second quarter to a record
C$11.2 billion as exports to the United States plunged. A
separate report showed producer prices fell 0.5 percent in July
and raw materials prices fell 3.8 percent due largely to weaker
energy prices. [ID::N28361847]
 The lower close capped off a 0.9 percent skid by the
domestic currency this week, a move triggered by Tuesday's
comments from a Bank of Canada official who warned that
persistent Canadian dollar strength could hurt the country's
economic recovery. [ID:nN25220089]
 Friday's fall was cushioned somewhat by the price of oil, a
major Canadian export, which ended up slightly given lingering
optimism that the recession is ending, spelling a rebound in
ailing world energy demand. [ID:nSP440141]
 Canadian bond prices pared early losses and ended flat
across the curve as a weak reading on U.S. consumer sentiment
fueled doubts about an economic recovery and helped to revive a
modest safety bid for bonds.
 Worries over high unemployment pushed U.S. consumer
confidence to a four-month low in August and cast more doubt on
the strength and sustainability of the U.S. recovery from the
worst economic slump in 70 years. [ID:nN28358241]
 The two-year bond CA2YT=RR ended up 1 Canadian cent at
C$99.44 to yield 1.284 percent, while the 10-year bond
CA10YT=RR slipped 3 Canadian cents to C$102.92 to yield 3.395
 The 30-year bond CA30YT=RR shed 15 Canadian cents to
C$118.40 to yield 3.907 percent. The comparable U.S. bond
yielded 4.194 percent.
 Canadian bonds underperformed their U.S. counterparts
across most of the curve. The Canadian 30-year bond was 28.5
basis points below the U.S. 30-year yield, versus 32.7 basis
points on Thursday.
 (Editing by Rob Wilson)

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