Canada dollar at weakest vs greenback in 1-1/2 yrs

Mon Oct 6, 2008 10:38am EDT
 
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 * Canada's dollar down 1.7 pct versus greenback
 * Bonds rally on safe haven bid as equities fall
 By John McCrank
 TORONTO, Oct 6 (Reuters) - The Canadian dollar fell to its
weakest since May 2007 against a rallying U.S. dollar on
Monday, as concerns about the global financial crisis put a bid
to the greenback and undercut commodity prices.
 Bond prices rose as investors looked for a safe place to
park their cash as equity markets tumbled.
 At 10:15 a.m. (1415 GMT), the Canadian dollar was at
C$1.1000 to the U.S. dollar, or 90.90 cents, down from C$1.0815
to the U.S. dollar, or 92.46 U.S. cents, at Friday's close.
 The currency fell 1.7 percent after dropping 4.5 percent
last week, mostly in response to a stronger U.S. dollar. With
that trend in place the Canadian dollar is likely due for more
losses in the short term, said Adam Cole, head currency
strategist at RBC Capital Markets in London.
  "I think the bias has to be that way, because it seems
almost nothing will stop the U.S. dollar at the moment," he
said. "It rallies on weak equity markets and it rallies on
strong equity markets, and so long as that's the case, then
Canada is going to get caught up in that flow."
 Concerns over the crisis in the global financial sector
have led to tight liquidity, which along with a safe haven bid,
have put a premium on the greenback.
 Weaker commodity prices due to fears of slowing global
demand have also hurt the Canadian dollar, as around 50 percent
of Canada's exports are made up of natural resources.
 "For Canada, much weaker net trade is on tap and any
supposed terms of trade advantage is being lost as commodities
tumble," said Derek Holt, economist at Scotia Capital, in a
note.
 He added that with Canada's housing market softening,
retail sales trending down, and business investments declining,
the Canadian economy may be in for a period of prolonged
weakness.
 "This is not just made-in-the-USA weakness as Canada faces
its own homegrown recession signals," he said.
 BOND PRICES RALLY
 Canadian bond prices rose on a safe-haven bid as fears of a
global recession hit equity markets, knocking the Toronto Stock
Exchange below the 10,000 point mark for the first time since
July 2005.
 With credit conditions remaining tight and economies
slowing, bond yields, which move opposite to prices, have been
pressured lower to refect expectations of lower interest rates,
said Mark Chandler, fixed income strategist at RBC Capital
Markets.
 "There is a lot of talk about a potential rate cut by the
Fed this week, which may be coordinated," he said.
 Weaker-than-expected Canadian construction data from August
added to the safe-haven bid in the bond market, with the value
of building permits down by 13.5 percent from July.
 The nonresidential sector fell 19.3 percent, while the
residential sector dropped by 9.3 percent.
 The Canadian overnight Libor rate LIBOR01 was 3.750
percent, up from 3.650 percent on Friday.
 Friday's CORRA rate CORRA= was 3.0405 percent, up from
3.0235 percent on Thursday. The Bank of Canada publishes the
previous day's rate at around 9 a.m. daily.
 The two-year bond rose 37 Canadian cents to C$100.87 to
yield 2.332 percent. The 10-year bond gained 90 Canadian cents
to C$106.30 to yield 3.475 percent.
 The yield spread between the two-year and the 10-year bond
rose to 118 basis points, from 115 basis points at the previous
close.
The 30-year bond added C$1.65 to C$116.90 for a yield of
4.003 percent. In the United States, the 30-year Treasury
yielded 3.965 percent.
 The three-month when-issued T-bill yielded 1.55 percent,
unchanged from the previous close.
 (Reporting by John McCrank; Editing by Frank McGurty)