Canada Morning: C$ Higher As USD Retreats Broadly

TORONTO (Dow Jones)--The Canadian dollar is moderately higher Wednesday as equities and commodities edge higher and the U.S. dollar retreats broadly in currency markets amid hopes the U.S. government is approaching agreement on a bailout for the auto sector.

Canadian bonds are lower along with U.S. Treasurys as safe-haven flows are unwound.

The U.S. dollar was trading at C$1.2574at 10:29 a.m. EST (1529 GMT), from C$1.2612 at 8:00 a.m. EST (1300 GMT) and C$1.2647 late Tuesday.

Technically, the U.S. dollar looks inclined to head lower against its Canadian counterpart after being rejected from the C$1.3000 area for the third time late last week, said Shaun Osborne, chief currency strategist at TD Securities.

"It does look to me like we've seen a bit of a turn in the market after the latest failure in the C$1.3000 area," he said. "I think the risk is probably more towards C$1.2100, C$1.2000 than C$1.3000."

A return to C$1.3000 or higher can't be ruled out, given continued volatility in markets, he said.

But some renewed stability in credit markets could presage general weakness of the U.S. dollar, which has benefited markedly from safe-haven flows in recent weeks, he said.

In another favorable development for the Canadian currency, oil is surprisingly well bid despite some weak economic data overnight, Osborne said.

"We see to be accumulating a bit of short bias in the market again, and I think it could run," he said.

The U.S. dollar is currently positioned not far from a significant trend level at C$1.2534, he added.

Osborne said short-term volatility in the currency is possible as a result of the uncertainty surrounding the fate of the fate of the C$51.7 billion ($41.3 billion) takeover of BCE Inc., which looks likely to collapse after an unfavorable solvency opinion from auditors.

In data Wednesday, Canada's labor productivity was unexpectedly flat in the three months to September, extending weakness that began in the second quarter of 2007, the longest stretch since Statistics Canada began tracking the data in 1981.

The market had expected a 0.2% gain. By contrast, U.S. productivity grew 0.4% in the third quarter, StatsCan said.

Canadian bonds are lower across the yield curve Wednesday market as earlier safe-haven flows into government bond markets are partially unwound.

The 10-year bond is yielding 3.11%, from 3.08% Tuesday.

These are the exchange rates at 10:29 a.m. EST (1529 GMT), 8:00 a.m. EST (1300 GMT), and late Tuesday.

   USD/CAD     1.2574     1.2612     1.2467 
   EUR/CAD     1.6379     1.6305     1.6218 
   CAD/JPY      73.78      73.52      74.24 

-By Don Curren; Dow Jones Newswires;416-306-2020; don.curren@dowjones.com

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December 10, 2008 10:30 ET (15:30 GMT)


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