February 5, 2008 / 9:34 PM / 10 years ago

Canadian dollar rattled by U.S. recession worries

 By Frank Pingue
 TORONTO, Feb 5 (Reuters) - The Canadian dollar closed lower
against the U.S. dollar on Tuesday as another bout of recession
talk south of the border triggered concerns about what impact
that could have on demand for Canadian commodities.
 Domestic bond prices finished higher across the curve as
investors checked out of riskier investments like equities and
turned to the security offered by government debt.
 The Canadian dollar closed at C$1.0072 to the U.S. dollar,
or 99.29 U.S. cents, down from US$1.0067, or 99.33 Canadian
cents to the U.S. dollar, at Monday's close.
 During the North American session, the currency fell to
C$1.0082, or 99.19 U.S. cents, which was just shy of its lowest
level since Jan. 28.
 The Canadian dollar's slide came after Institute for Supply
Management data showed a sharp drop in activity in the U.S.
service sector. That reinforced fears the U.S. economy is
slowing, which could spell trouble for the Canadian economy,
which relies heavily on trade with the United States.
 "I think recession, not just concerns but reality, are
front and center for markets again," said Doug Porter, deputy
chief economist at BMO Capital Markets.
 "The very weak non-manufacturing ISM took a bite out of oil
prices and commodity prices in general, and that's sideswiped
the Canadian dollar big time."
 Oil prices shed more than $2 a barrel to a nearly two-week
low as the U.S. data reinforced fears that energy demand will
slow. Canada is a major producer and exporter of oil and its
currency is often influenced by the commodity's price.
 Canadian bond prices rose on a flight to safety, given the
latest U.S. recession worries, but moves in the domestic bond
market were limited ahead of key data due later this week.
 January job and housing figures will be released on Friday,
following Wednesday's December building permits data and Ivey
Purchasing Managers Index report.
 Building permits and Ivey data rarely have a significant
impact, but they did garner plenty of attention last month and
will likely be watched with some care this time around.
 "Both of them are coming off very weak readings in the
prior month and it will be interesting to see if they stay at
those kinds of very low levels," said Porter.
 "But, realistically, with employment (numbers) just around
the corner you wouldn't think they could have as big an impact
as they did a month ago."
 The two-year bond rose 22 Canadian cents to C$102.14 to
yield 3.028 percent. The 10-year bond climbed 63 Canadian cents
to C$101.86 to yield 3.761 percent.
 The yield spread between the two- and 10-year bond was 73.3
basis points, up from 68.8 points at the previous close.
 The 30-year bond jumped 96 Canadian cents to C$115.16 to
yield 4.105 percent. In the United States, the 30-year treasury
yielded 4.331 percent.
 The three-month when-issued T-bill yielded 3.29 percent,
down from 3.35 percent at the previous close.

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