March 30, 2009 / 2:36 PM / in 9 years

CANADA FX DEBT-Auto woes hit Canadian dollar, lift bonds

 * Threat of bankruptcy looms on U.S. auto sector
 * C$ hit by risk aversion, session low at 79.72 U.S. cents
 * Bonds win safety bid as stock slump
 * BoC’s Carney in focus, lecture at 1905 GMT  (Updates with bond movement, additional comment)
 TORONTO, March 30 (Reuters) - The Canadian dollar fell hard to a nearly two-week low against the U.S. currency on Monday morning, while bonds rallied, on renewed trouble in the U.S. auto sector.
 World stocks slumped on concerns General Motors Corp (GM.N) and Chrysler were edging closer to bankruptcy as their turnaround plans were rejected. Concerns about the banking sector in Europe also hit sentiment. For more see [ID:nLU230709] and [ID:nN29520526].
 At 10:01 a.m. (1401 GMT) the Canadian dollar was at its lowest point in the session at C$1.2544 to the U.S. dollar, or 79.72 U.S. cents, down from C$1.2374 to the U.S. dollar, or 80.81 U.S. cents, at Friday’s close.
 The U.S. dollar is benefiting from “flight-to-safety buying,” which is the main factor pushing down the Canadian unit, said Sal Guatieri, senior economist at BMO Capital Markets. “There’s fears of GM and Chrysler’s possible bankruptcy.”
 The stronger U.S. dollar was also helping to pressure the price of oil, which fell to around $50 a barrel on Monday amid the slump in global equity markets. Canada is a major exporter of oil and the currency often tracks the movement in oil prices. [ID:nSYD421224]
 Commodity-linked currency cousins, the Australian and New Zealand dollars, also fell hard, each more than 1 percent against the greenback on Monday. The pair had strong gains last week as risk appetite recovered.
 BONDS SURGE
 Canadian government bonds rallied across the curve in a flight-to-safety bid as the auto sector woes trampled sentiment in riskier assets such as stocks.
 While the auto industry news will likely be the primary driver on Monday, Canadian market watchers will also monitor Bank of Canada Governor Mark Carney’s lecture in Edmonton, Alberta this afternoon.
 Market players are interested in new clues on how the central bank views the economy as well as any insight into measures the Bank of Canada may use to prompt the economy from recession, including pumping money into the financial system.
 “We’re much on guard for that. I can’t say with confidence that we’ll hear something new but it strikes us as the perfect opportunity to do so. We’ve already seen quantitative easing fully deployed in the U.S.,” said Eric Lascelles, chief rates and economics strategist, at TD Securities.
 “To me this speech holds far more promise than many we’ve seen for awhile... But it might even be just another effort to clarify the definitions of quantitative and credit easing.”
 But Lascelles said he was mindful that the Bank of Canada has said it would reveal its proposed framework for so-called quantitative and credit easing -- printing money to buy securities outright on the market -- in late April.
 Market watchers will also be keen for details on this week’s U.S. Federal Reserve purchases of U.S. Treasuries.
 The two-year bond jumped 8 Canadian cents to C$100.24 to yield 1.139 percent. The 10-year bond gained 62 Canadian cents to C$107.77 to yield 2.863 percent.
 The 30-year bond surged 90 Canadian cents to C$124.40 to yield 3.612 percent. The U.S. 30-year bond yielded 3.545 percent.  (Reporting by Ka Yan Ng and Jennifer Kwan; Editing by Jeffrey Hodgson)                               

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