Saturday September 20, 2008 - 10:42:26 GMT
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Reuters - www.reuters.com
Forex Market News - Canadian dollar up over a cent as markets rally
* Canadian dollar up 1.1 pct on day, 1 pct for week
* U.S. officials to take action on toxic U.S. debt
* Bond prices drop sharply as safe-haven bid unwinds
By John McCrank
TORONTO, Sept 19 (Reuters) - The Canadian dollar rose to
its highest point in three weeks against the U.S. dollar on
Friday, gaining support from rallying commodity prices on the
back of plans for a comprehensive package to sop up the toxic
debt that has been clogging U.S. financial and money markets.
Canadian bond prices tumbled on a sharp unwinding of the
recent safe-haven bid for government debt.
The Canadian dollar ended the North American session at
C$1.0500 to the U.S. dollar, or 95.24 U.S. cents, up from
C$1.0618 to the U.S. dollar, or 94.18 U.S. cents, at Thursday's
The currency gained 1 percent for the week after a soft
start as markets reeled from the bankruptcy filing of Lehman
Brothers Holdings Inc (LEH.N: Quote, Profile, Research, Stock Buzz) (LEHMQ.PK: Quote, Profile, Research, Stock Buzz), which failed to
finance risky real estate bets. The sale of Merrill Lynch
(MER.N: Quote, Profile, Research, Stock Buzz) and a bailout of American International Group (AIG.N: Quote, Profile, Research, Stock Buzz)
followed, freezing up credit markets.
"A few days ago we were looking over a cliff and what we
saw was a situation similar to Japan in the 1990s unfolding for
the U.S. economy," said Michael Gregory, senior economist at
BMO Capital Markets.
"Now we are in a position where we are far away from that
and we will see, hopefully this spring, signs of stronger
growth and resumed credit creation in the economy."
News that U.S. Treasury Secretary Henry Paulson and U.S.
Federal Reserve Chairman Ben Bernanke plan to work with
Congress on a comprehensive plan to deal with toxic bank assets
clogging the financial system led to huge rallies on stock
The gains were extended after the Fed said it would provide
loans to banks and institutions for purchases of high-quality
asset-backed commercial paper from money market funds.
The stronger equities spurred a rally in commodity prices
as demand was seen strengthening, while it weakened the U.S.
dollar, which had been bought recently as a safe haven
currency, said Matthew Strauss, senior currency strategist at
RBC Capital Markets.
More than 50 percent of Canadian exports are commodities.
Despite the strength against the greenback, the Canadian
dollar was weaker against most other major currencies.
"The gain against the U.S. dollar came about thanks to
higher commodity prices, but we couldn't escape the broader
theme of being classified as a North American currency,"
BONDS SELL OFF
Canadian bond prices dropped sharply as the unwinding of
the safe-haven bid that had been boosting the market
The 10-year bond had its biggest one-day fall since 2004,
while the two-year bond fell the most in almost a month.
"It's basically been a change in perception," said BMO's
"I think the bond market does not believe central banks
necessarily have to cut interest rates as aggressively, if at
all in the face of the credit squeeze anymore."
There was no economic data in Canada on Friday, but next
week starts off with a couple of key indicators, with retail
sales numbers for July on Monday and inflation data for August
The two-year bond fell 80 Canadian cents to C$99.70 to
yield 2.892 percent, while the 10-year dropped C$1.60 to
C$104.35 to yield 3.710 percent.
The yield spread between the two-year and 10-year bond was
79.4 basis points, down from 81.9 basis points at the previous
The 30-year bond tumbled C$2 to C$114.40 for a yield of
4.137 percent. In the United States, the 30-year Treasury
yielded 4.406 percent.
The three-month when-issued T-bill yielded 2.27 percent, up
from 1.50 percent at the previous close.
(Editing by Peter Galloway)
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