Canadian dollar drops, bonds surge on ECB comments

Thu Oct 2, 2008 10:15am EDT
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* Canadian dollar down about 4 percent so far this week

* Bonds gain on safe haven bid

* Focus on U.S. jobs data, U.S. House vote on bailout

TORONTO, Oct 2 (Reuters) - The Canadian dollar fell hard against the U.S. dollar on Thursday, with the greenback making swift gains on European Central Bank President Jean-Claude Trichet's comments on risks to the euro zone economy.

Bond prices surged as worried investors continued to seek the safety of government debt amid a weakening global economy and falling stocks.

At 10:10 a.m. (1410 GMT), the Canadian dollar was at C$1.0719 to the U.S. dollar, or 93.29 cents, down from C$1.0620 to the U.S. dollar, or 94.16 U.S. cents, at Wednesday's close.

"Most of the U.S. dollar strength overnight came as a result of more euro weakness heading into the ECB announcement," said Shane Enright, currency strategist at CIBC World Markets.

"Most of the other currencies, the Canadian dollar included, are trending lower. With risk aversion still high and the markets still in crisis mode, the (U.S.) dollar is a beneficiary of that, even though on some levels, it seems a little nonsensical."

The ECB kept its benchmark rate steady at 4.25 percent. Trichet said inflation risks in the euro zone have diminished, and that the central bank had discussed cutting rates, but had decided against it.   Continued...