Canadian dollar falls to 1-1/2 yr low vs greenback

Mon Oct 6, 2008 4:32pm EDT
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 * Canadian dollar falls 1.6 pct versus greenback
 * Bonds rally on safe haven bid as equities fall
 * Housing market shows more signs of slowing
 By John McCrank
 TORONTO, Oct 6 (Reuters) - The Canadian dollar fell to its
weakest level against the U.S. dollar since May 2007 on Monday
as fears of more fallout from the global financial crisis froze
money markets, putting a premium on the greenback and
undercutting support for commodities.
 Bond prices rose as investors looked for a safe place to
park their cash in response to huge losses on the stock
 The Canadian dollar closed the North American session at
C$1.0992 to the U.S. dollar, or 90.98 cents, down from C$1.0815
to the U.S. dollar, or 92.46 U.S. cents, at Friday's close.
 The currency fell 1.6 percent against its U.S. counterpart
after dropping 4.5 percent last week, mostly in response to a
stronger U.S. dollar.
 "Everything is getting clobbered by the U.S. dollar," said
David Watt, senior currency strategist at RBC Capital Markets.
 Lenders have been hoarding cash in response to a bevy of
collapsing financial institutions in the United States and
 That has decreased the supply of U.S. dollars in the
foreign exchange markets, making them more expensive to buy
relative to other currencies.
 The American dollar has also regained its status as a safe
haven asset, in part due to deteriorating economic outlooks
elsewhere in the world, which have weakened other currencies.
 "To the extent that people are just fearful in general,
it's obviously not a great environment for any currency that's
sensitive to the global cycle, and that is Canada," Watt said.
 About half of Canada's exports consist of natural resources
such as oil, natural gas, gold, and base metals.
 As worries grow about the possibility of a global
recession, commodity prices have tumbled on expectations of
faltering demand. The Reuters-Jeffries CRB index CRB, a
global commodities benchmark, was trading on Monday at its
lowest point since October 2007.
 "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
 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
 "This is not just made-in-the-USA weakness as Canada faces
its own homegrown recession signals," he said.
 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.
 "That was edging dangerously close to putting trading halts
on the TSX, so this is a very volatile environment, a very edgy
environment, and you can't expect anything but a flight to
safety," said Charmaine Buskas, senior economics strategist at
TD Securities.
 The Bank of Canada moved to increase liquidity in Canadian
markets, injecting C$2.375 billion through special purchase and
resale agreements. It also left C$2.584 billion in its large
value transfer system, rather than the C$25 million it normally
leaves, to ensure easy settlement of balances between banks.
 On the data front, the value of building permits fell by
more than expected in August, down by 13.5 percent from July.
The nonresidential sector fell 19.3 percent, while the
residential sector dropped by 9.3 percent.
 "That probably helped the rally that was already under way
from the global credit market turmoil gain some traction,"
Buskas said.
 The Ivey Purchasing Managers Index rose to 61.0 in
September from 51.5 in August. A reading of 50.0 indicates that
activity remained flat from the preceding month, while a higher
reading indicates an increase and a lower reading reflects a
slowing or decrease.
 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
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 Peter Galloway)