Wednesday March 11, 2009 - 21:25:01 GMT
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Reuters - www.reuters.com
Forex News - CANADA FX DEBT-Oil knocks down C$, bonds get safe-haven lift
* C$ reverses direction, wipes out early gains
* Slide in oil price primary source of weakness
* Bearish economic reports also hit currency
* Market focus on Friday's trade, employment data
(Updates to close)
By Ka Yan Ng
TORONTO, March 11 (Reuters) - The Canadian dollar closed
slightly lower against the U.S. currency on Wednesday, erasing
early gains, hurt by weaker oil prices and reports that
predicted the economy is still in for a rough ride.
The currency finished at C$1.2862 to the U.S. dollar, or
77.75 U.S. cents, down from C$1.2852 to the U.S. dollar, or
77.81 U.S. cents, at Tuesday's close.
Early in the session the currency rallied as high as
C$1.2751 as growing risk appetite resulted in a range of
currencies strengthening against the greenback, which is
typically viewed as a safe haven.
But the Canadian unit then dropped low as C$1.2904 to the
U.S. dollar, or 77.50 U.S. cents, as oil, a major Canadian
export, fell more than 6 percent to below $43. [ID:nSP383602]
"The fact that we've seen oil prices softening today is
contributing (to the Canadian dollar's pullback)," said Eric
Lascelles, chief economics and rates strategist at TD
An International Monetary Fund report on Wednesday said
more pain is in store for the Canadian economy because of its
reliance on international trade and its high exposure to
commodity prices. [ID:nN11413146]
Also, Canada's independent budget office said data showing
a 3.4 percent annual rate of economic contraction in the fourth
quarter -- the worst since 1991 -- was actually too upbeat.
"They've all had their own particular angle, but the bottom
line is still that the Canadian economy is in some pretty grim
shape," Lascelles said.
The two reports add to the already pessimistic view ahead
of this Friday's set of top-tier monthly statistics -- jobs and
trade. There is little doubt among market players that the
numbers will reinforce the view that the economy is under great
strain, which could put further pressure on the currency.
A Reuters survey found that analysts expect the economy to
have shed 52,500 jobs in February after a drop of 129,000 jobs
in January, while trade data for January is expected to show
Canada's trade deficit more than doubled to C$1 billion.
The currency has had a volatile week so far, mostly on the
swiftly changing appetite for risk. The Canadian dollar hit a
high at C$1.2725 to the U.S. dollar, or 78.59 U.S. cents, on
Tuesday, rebounding from the September 2004 low it touched at
C$1.3066 to the U.S. dollar, or 76.53 U.S. cents, on Monday.
Canadian bond prices turned higher on Wednesday, following
U.S. Treasuries, as U.S. stock markets lost most of their early
The appeal of the safe haven government debt is often
curbed when riskier assets, such as stocks, are favored.
Although the Toronto Stock Exchange main index closed
higher for a second straight session, Canadian government bonds
took their cues from U.S. stocks, which closed well off the
day's highs. [ID:nN11314027]
"Earlier gains in equities weren't sustained and that may
have resulted in funds moving back into fixed income," said
Paul Ferley, assistant chief economist at Royal Bank of
Expectations that the upcoming Canadian monthly jobs and
trade data may paint a dire picture of the economy in the first
quarter may also be supporting the bonds' firmer tone.
The two-year bond was unchanged at C$103.01 to yield 0.983
percent. The 10-year bond gained 77 Canadian cents to C$107.35
to yield 2.912 percent.
The 30-year bond advanced C$1 to C$123.45 to yield 3.660
percent. The U.S. 30-year bond yielded 3.65 percent.
(Additional reporting by Jeffrey Hodgson; Editing by Peter
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