Tuesday May 26, 2009 - 21:46:25 GMT
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Reuters - www.reuters.com
Forex Market News - CANADA FX DEBT-U.S. confidence data drives sharp C$ rally
* C$ hits highest level since Oct. 8
* Upbeat U.S. data credited for rally
* Bond prices end down across curve
(Recasts and adds details)
By Frank Pingue
TORONTO, May 26 (Reuters) - Canada's currency closed higher
versus the greenback on Tuesday and touched its loftiest level
in more than seven months, spurred by a rise in oil prices and
by upbeat U.S. economic data that whetted investor appetite for
Early in the session the Canadian dollar was given a boost
after U.S. data showed that consumer confidence rose in May to
its highest level in eight months. [ID:nN26484791]
That allowed the Canadian dollar to recapture the losses it
suffered overnight and gave it enough momentum to rise late in
the session as high as C$1.1163 to the U.S. dollar, or 89.58
U.S. cents, its highest level since Oct. 8.
The confidence data was the latest of several reports in
the past few weeks to signal an improving U.S. economy and to
weigh on the safe-haven status of the greenback, allowing the
Canadian dollar to rally from the four-year low it hit in early
"We are seeing some risk aversion being taken off the table
so that's taken some of the bid tone out of the U.S. dollar,"
said Charmaine Buskas, senior economics strategist at TD
"Investors are clearly getting more comfortable with the
U.S. outlook on the back of that consumer confidence number, so
that is helping the Canadian dollar sustain a rally."
The Canadian unit ended the session at C$1.1178 to the U.S.
dollar, or 89.46 U.S. cents, which was up from C$1.1235 to the
U.S. dollar, or 89.01 U.S. cents, at Monday's close.
Buskas also said the price of oil, a key Canadian export,
was helping the Canadian dollar's rally as oil prices were
boosted by comments that demand has picked up. [ID:nSYD496746]
The turnaround in the Canadian dollar allowed it to reclaim
all the losses suffered overnight, when stocks fell overseas as
tension over North Korea's nuclear tests fueled more debate
over the global economic outlook.
That sentiment knocked the Canadian dollar as low as
C$1.1356 to the U.S. dollar, or 88.06 U.S. cents, and the
currency appeared likely to stay lower during the North
American session until the U.S. data boosted sentiment.
"It looked again like a risk aversion day and now we are
right back into 'things are good and the world is safe'," said
Steve Butler, director of foreign exchange trading at Scotia
Capital. "It's amazing how quickly the market just turns a
cheek and looks away when we get another bit of good news out
of the United States."
BOND PRICES RATTLED
Canadian bond prices ended down across the curve due to the
better-than-expected U.S. data, which sapped demand for secure
The U.S. report boosted North American equities, including
a gain of more than 2 percent in Toronto as investors continued
to bid up the key stock index after it hit a five-year low in
"The key catalyst was the consumer confidence numbers in
the U.S. ... and when you dig down a little deeper it was
because consumers have quite elevated expectations that things
will be much better six months down the road," said Michael
Gregory, senior economist at BMO Capital Markets.
"That's something you can't say for many indicators now.
The expectation component of the confidence index was the
highest level it's been since the recession started ... it's a
very positive indicator economic standpoint."
Late in the session, Finance Minister Jim Flaherty said
Canada will run a deficit of more than C$50 billion, its
biggest ever, in the current fiscal year. [ID:nN26501199]
The news had little impact on bond prices, which Gregory
said was likely because the market was already preparing for
the fact that the deficit was going to be bigger than the
government had initially projected.
Canada's current account balance for the first quarter is
due on Friday, but first-quarter GDP figures next Monday will
likely be more important for market direction ahead of the Bank
of Canada's next interest rate announcement on June 4.
The benchmark two-year government bond ended down 7
Canadian cents at C$100.09 to yield 1.207 percent, while the
10-year bond slipped C$1,15 to C$102.75 to yield 3.424
The 30-year bond dropped C$1.950 to C$115.30 to yield 4.079
Canadian bonds outperformed their U.S. counterparts across
much of the curve. The 30-year bond yield was about 12 basis
points below the U.S. 30-year yield, almost unchanged from the
(Editing by Peter Galloway)
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