Wednesday October 29, 2008 - 20:47:33 GMT
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Reuters - www.reuters.com
Forex Market News - CANADA FX DEBT-C$ surges on commodity-fueled rally
* Canadian dollar rebounds from Tuesday's 4-year low
* Higher commodity prices support currency's rise
* Short-end bond prices up after interest rate cuts
By Frank Pingue
TORONTO, Oct 29 (Reuters) - The Canadian dollar rallied
more than 3 U.S. cents higher on Wednesday as a jump in prices
for key commodities and an extended rebound in equity markets
lifted the currency to its highest level in a week.
Domestic bond prices were boosted slightly on the short end
of the curve after interest rate cuts in China and the United
States sparked demand for more secure government debt, but the
rise was muted given the rally in equity markets.
The Canadian dollar closed at C$1.2250 to the U.S. dollar,
or 81.63 U.S. cents, up 4.7 percent from C$1.2827 to the U.S.
dollar, or 77.96 U.S. at Tuesday's close.
A rally that began late in Tuesday's North American session
carried on overnight and gathered momentum on Wednesday as
prices for Canadian exports such as oil and gold moved further
off their recent lows, while improved market sentiment helped
lure investors back to equity markets.
The Canadian currency rallied as high as C$1.2126 to the
U.S. dollar, or 82.47 U.S. cents, which helped it reclaim a
chunk of the big losses suffered in the past month.
"It's on quite a roll," said George Davis, chief technical
strategist at RBC Capital Markets.
"A lot of the factors that have been a negative for the
Canadian dollar over the past few months in terms of declining
equities and declining commodity markets have reversed course
at least over the past few days."
The rally marked a significant turnaround from Tuesday when
at one point the currency 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 largely on investors who continued to
liquidate riskier assets in favor of the greenback.
Davis said another factor behind the currency's latest
rally was U.S. dollar profit-taking as investors likely felt
its latest rise was a bit stretched.
After its first back-to-back winning sessions in about a
month, the Canadian dollar remains down 13 percent in October
and 19 percent in 2008.
BOND PRICES MIXED
bond prices reclaimed some of the losses suffered on the
short end of the curve as central banks around the globe
scrambled to cut interest rates to cushion the economic fallout
of the financial crisis.
China cut interest rates for the third time in six weeks to
help the world's fourth-largest economy ride out the global
financial crisis, while the Federal Reserve did as expected and
cut U.S. interest rates by at least a half-percentage-point.
Also, there is talk that the Bank of Japan is gearing up to
cut rates on Friday.
"The main story here is interest rates continue to come
down rapidly around the world," said Doug Porter, deputy chief
economist at BMO Capital Markets. "It's no longer just a North
American story any more, we're seeing rate cuts everywhere."
But the rise on the short-end of the curve was muted and
the long-end fell as the Toronto Stock Exchange's main index
jumped 3.8 percent on strength in commodity prices.
The two-year bond rose 3 Canadian cents to C$101.37 to
yield 2.075 percent. The 10-year dropped 47 Canadian cents to
C$104.00 to yield 3.748 percent.
The yield spread between the two-year and the 10-year bond
moved to 167 basis points from 159 at the previous close.
The 30-year bond fell C$1.15 to C$112.05 to yield 4.266
percent. In the United States, the 30-year treasury yielded
Canada's data calendar will pick up on Thursday with the
industrial product price index and the raw materials price
index for September, followed by Friday's gross domestic
product report for August.
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