October 30, 2008 / 1:52 PM / in 12 years

CANADA FX DEBT-C$ boosted by higher oil, equity rally

* Canadian dollar comfortably off Tuesday’s multi-year low

* Higher commodity prices and risk appetite fueling gains

* Bond prices dumped in wake of global equity market rally

By Frank Pingue

TORONTO, Oct 30 (Reuters) - The Canadian dollar rallied to a 10-day high versus the U.S. dollar on Thursday as a rise in prices for oil, a key Canadian export, helped the currency move further off its recent multi-year low.

Bond prices were stuck lower across the curve as a rise in global equity markets crimped demand for secure government debt, but the slide was cushioned as the latest Canadian data came in weaker than expected.

At 9:35 a.m. (1435 GMT), the Canadian unit was at C$1.2066 to the U.S. dollar, or 82.88 U.S. cents, up from C$1.2250 to the U.S. dollar, or 81.63 U.S. cents, at Wednesday’s close.

During the overnight session the Canadian currency rallied to C$1.1897 to the U.S. dollar, or 84.05 U.S. cents, its highest level since Oct. 20.

The sudden turnaround in the dollar has been pegged to a slew of factors including higher prices for Canadian exports such as oil and gold and an improved market sentiment that helped lure investors back to equity markets.

Heightening the move was a weaker U.S. dollar after data showed the U.S. economy had its sharpest contraction in seven years in the third quarter as consumers cut spending.

“In addition to a weaker U.S. dollar, which is helping to push the Canadian dollar higher, we are also seeing a bit of support for oil prices,” said Charmaine Buskas, senior economics strategist at TD Securities. “So the combination of the two are really what’s driving the Canadian dollar.”

The rally in the Canadian dollar, which is coming off its first back-to-back winning sessions in about a month, marks a significant turnaround from Tuesday when it fell to C$1.3019 to the U.S. dollar, or 76.81 U.S. cents, its lowest level since September 2004. That move was blamed on investors who continued to liquidate riskier assets in favor of the greenback.


Bond prices were all lower as global stock markets rallied following a wave of central bank rate cuts that improved risk appetite among investors who suddenly felt less of a desire to utilize the security offered by government debt.

The Toronto Stock Exchange’s main index jumped 2.5 percent at the open, while the Dow Jones industrial average was up 2.2 percent.

The Federal Reserve did as expected on Wednesday and lowered U.S. rates by half a percentage point to 1 percent in an attempt to revive a sagging economy.

China, Hong Kong, Norway and Taiwan also cut rates in the past 24 hours, and pressure mounted on the Bank of Japan to reduce rates after it meets on Friday.

Also weighing on bond prices was data that showed a sharper-than-expected decline in Canadian industrial product and raw materials prices in September.

The Canadian overnight Libor rate LIBOR01 was 2.2500 percent, down from 2.2550 percent on Wednesday.

Wednesday’s CORRA rate CORRA= was 2.2492 percent, down from 2.2502 percent on Tuesday. The Bank of Canada publishes the previous day’s rate at around 9 a.m. daily.

The two-year bond was down 4 Canadian cents at C$101.34 to yield 2.089 percent. The 10-year dropped 15 Canadian cents to C$103.85 to yield 3.766 percent.

The yield spread between the two-year and the 10-year bond was 167 basis points, unchanged from the previous close.

The 30-year bond fell 10 Canadian cents to C$111.90 to yield 4.274 percent. In the United States, the 30-year Treasury yielded 4.264 percent. (Editing by Peter Galloway)

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