Canada Morning: C$ Higher As Risk Aversion Dissipates

TORONTO (Dow Jones)--The Canadian dollar is substantially higher early Monday, as the U.S. government's latest bailout of a major financial institution coupled with the expected appointment of new Treasury Secretary Timothy Geithner has served to at least temporarily alleviate risk aversion in markets and stanch safe haven demand for the U.S. dollar.

The U.S. dollar was trading at C$1.2533 at 10:12 a.m. EST (1512 GMT), from C$1.2651 at 8:00 a.m. EST (1300 GMT) and C$1.2766 late Friday.

Gains for the Canadian dollar and other second-tier currencies Mnmday have been in some respects extensions of the rebounds set in motion on Friday, when the first inkings of the appointment of the market-friendly Geithner as president-elect Barack Obama's first Treasury Secretary sparked a relief rally for equity markets and risk-sensitive currencies.

The sense of relief across global markets was augmented over the weekend by news that the U.S. government will take steps to backstop Citigroup Inc., the latest financial giant to find itself on the brink as a result of soured investments.

All these developments have served to erode any safe haven demand for U.S. dollars, sending currencies like the Canadian dollar higher as risk appetites revive.

The Canadian currency is underperforming the scope of gains made by other non-U.S. currencies however, likely as a result of more candid remarks recently by top Canadian officials acknowledging the likelihood of recession in Canada.

Prime Minister Stephen Harper admitted at the conclusion of the Asia-Pacific Economic Co-operation summit in Lima, Peru, that the nation is likely to slide into at least a "technical recession" by late 2008-early 2009, while Finance Minister Jim Flaherty suggested in a weekend TV interview that Canada may already be in recession.

"There's bids across the board against the U.S. dollar, and the Canadian dollar is lagging to some degree, perhaps on the back of Prime Minister Harper's acknowledgement that Canada is likely to fall into what he refers to as a 'technical recession,'" said Jack Spitz, managing director of foreign exchange at National Bank in Toronto. "There's some lagging for Canada as a result of that, but with commodity prices also stronger, the movement should be towards a stronger Canadian dollar."

Spitz suggested that near-term resistance for the Canadian currency on its current rebound will likely be found between C$1.2500 and C$1.2520.

Canadian bonds are slightly lower in light trading early Monday, with the yield on the benchmark 10-year bond at 3.48% from 3.46% late Friday.

These are the exchange rates at 10:12 a.m. EST (1512 GMT), 8:00 a.m. EST (1300 GMT), and late Friday.

   USD/CAD     1.2533     1.2651     1.2766 
   EUR/CAD     1.6047     1.6122     1.6064 
   CAD/JPY      76.67      75.56      74.99 

-By Paul Evans; Dow Jones Newswires; 416-306-2022; paulr.evans@dowjones.com

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(END) Dow Jones Newswires

November 24, 2008 10:19 ET (15:19 GMT)


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