Canadian dollar extends skid as oil prices fall

Wed Dec 5, 2007 5:25pm EST
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 By Frank Pingue
 TORONTO, Dec 5 (Reuters) - The Canadian dollar finished
lower against the U.S. currency on Wednesday, dragged down by a
slide in oil prices, follow-through from the unexpected Bank of
Canada rate cut earlier this week, and a stronger greenback.
 Domestic bond prices, with no Canadian data to consider,
took their cue from the bigger U.S. treasuries markets and
ended down after strong U.S. data.
 The Canadian dollar closed at 98.49 U.S. cents, valuing
each U.S. dollar at C$1.0153, down from 98.77 U.S. cents, or
C$1.0124, at Tuesday's North American close.
 A drop in oil prices to below $88 a barrel, due mainly to
fears over the health of the U.S. economy, shook the Canadian
dollar since Canada is a major producer and exporter of oil and
its currency often follows crude prices.
 The Bank of Canada's rate cut on Tuesday, which went
against most expectations for the central bank to stand pat
until January, also weighed on the domestic dollar as lower
rates generally make a currency less attractive.
 The drop in the Canadian dollar was magnified as the U.S.
currency rallied after data showed robust jobs growth that
suggested a milder economic slowdown than many had thought.
 "There was a whole panoply of things undercutting the
Canadian dollar," said Doug Porter, deputy chief economist at
BMO Capital Markets. "And, in some sense, you could almost say
it's a bit surprising it didn't weaken even more given the
forces stacked against it today."
 Since hitting a modern-day high of US$1.1039 on Nov. 7, the
Canadian dollar has retreated about 11 percent, due mainly to a
sudden wave of weak domestic economic data, lower oil prices
and concerns about the global economic picture.
 But with key U.S. and Canadian jobs data due at the end of
the week and a U.S. Federal Reserve rate decision on tap for
next week, the currency could halt its slide.
 Incoming Bank of Canada Governor Mark Carney said on
Tuesday the currency's volatility was not completely explained
by fundamentals, while Canadian Finance Minister Jim Flaherty
said its recent retreat had reduced concerns about the negative
impact it could have on the economy.
 Canadian bond prices ended lower across the curve as a
stronger than expected U.S. private jobs report pointed to a
possible uptick in the official government numbers due later in
the week.
 A strong jobs report on Friday would reduce expectations of
aggressive interest rate easing by the Fed.
 Also weighing on bond prices was a rebound in Canadian and
U.S. equity markets.
 Ahead of Friday's jobs data, bond prices could get
influenced by Bank of Canada Governor David Dodge who will
appear before a parliamentary committee on Thursday.
 The two-year bond slid 13 Canadian cents to C$101.32 to
yield 3.552 percent. The 10-year bond declined 48 Canadian
cents to C$100.53 to yield 3.932 percent.
 The yield spread between the two-year and 10-year bond
moved to 38.0 basis points from 38.2 at the previous close.
 The 30-year bond dropped C$1.04 to C$114.49 to yield 4.144
percent. In the United States, the 30-year treasury yielded
4.444 percent.
 The three-month when-issued T-bill yielded 3.84 percent, up
from 3.83 percent at the previous close.
 (Editing by Rob Wilson)