Canadian Dollar Reaches Highest in Seven Weeks on U.S. Plan

By Michael J. Moore

Sept. 25 (Bloomberg) -- Canada's dollar touched the highest in more than seven weeks as the U.S. Congress moved closer to an agreement on a $700 billion financial rescue plan after President George W. Bush urged swift action to help avert a recession.

The Canadian dollar has strengthened 2.8 percent against its U.S. counterpart so far this month. The U.S. is Canada's largest trading partner.

``Expectations of the passage of the plan should help stabilize the macroeconomic environment for the U.S., and therefore will positively affect the Canadian economy,'' said Paresh Upadhyaya, who helps manage $50 billion in currency assets as a senior vice president at Putnam Investments in Boston. ``The investment and trade links between the U.S. and Canada is why this passage is particularly important for Canada, and why it's helping the Canadian dollar.''

The Canadian currency appreciated 0.4 percent to C$1.0346 per U.S. dollar at 10:36 a.m. in Toronto, from C$1.0386 yesterday. It reached C$1.0299, the strongest since Aug. 4. One Canadian dollar buys 96.67 U.S. cents.

Immediately after Bush's speech last night, House Financial Services Committee Chairman Barney Frank told reporters that House and Senate Democrats had reached a deal on legislation. Frank said the bill will be signed into law in less than a week.

The Canadian currency will slip to C$1.12 against the U.S. dollar by the end of 2009, according to the median forecast of 33 economists surveyed by Bloomberg News.

Two-Year Yield

The yield on the two-year government bond climbed 4 basis points, or 0.04 percentage point, to 2.89 percent. The price of the 2.75 percent security due in December 2010 fell 8 cents to C$99.72.

The 10-year government note's yield increased 2 basis points to 3.69 percent. The price of the 4.25 percent note maturing in June 2018 fell 19 cents to C$104.58.

The 10-year bond yielded 80 basis points more than the two- year security, down from 92 basis points on Sept. 18.

The two-year bond's yield will rise to 2.95 percent by the end of this year, while the 10-year bond's yield will increase to 3.76 percent, according to the median forecasts of economists surveyed by Bloomberg News.

The yield advantage of the 10-year U.S. Treasury note compared with similar-maturity Canadian government bonds was 15 basis points, up from 3 basis points on Sept. 18. The Canadian 10-year bond yielded 36 basis points more than its U.S. counterpart on Jan. 22.

Canadian government bonds have returned 4.4 percent in 2008, according to Merrill Lynch & Co. index statistics. U.S. Treasuries have returned 4.7 percent this year.

Bank of Canada Governor Mark Carney will deliver a speech on recent economic developments at 1:15 p.m. in Montreal.

To contact the reporter on this story: Michael J. Moore in New York at Mmoore55@bloomberg.net.