August 6, 2008 / 1:47 PM / 9 years ago

Canadian dollar continues slide against greenback

TORONTO (Reuters) - The Canadian dollar slid further against the U.S. dollar on Wednesday, as investors bought the greenback amid a broad-based decline in commodity prices.

Domestic bond prices rose, reversing some of Tuesday’s losses after the U.S. Federal Reserve’s interest rate decision and statement.

At 9:20 a.m. EDT the Canadian dollar was at C$1.0467 to the U.S. dollar, or 95.54 U.S. cents, down from C$1.0419 to the U.S. dollar, or 95.98 U.S. cents, at Tuesday’s close.

The Canadian dollar has fallen 1.9 percent against the U.S. dollar so far this week.

“CAD isn’t falling for any Canada-specific reasons, but really just by default as the (U.S.) dollar is being bid up against everything,” said Adam Cole, head currency strategist at RBC Capital Markets in London.

The U.S. dollar had slipped against many major currencies after the Fed held interest rates steady on Tuesday and issued a fairly neutral statement. But it rallied again in Europe.

A recent fall in commodity prices, including oil and base metals strengthened the greenback, and weakened the commodity linked Canadian dollar.

U.S. consumers, already facing a housing slump and a credit squeeze, were being pressed by high prices at the gas pump and elsewhere. Canada, the biggest supplier of oil to the United States and a net exporter of many key commodities, had cashed in on the higher energy prices.

Cole said the Canadian dollar could continue to decline, as momentum is carrying it through several key technical levels.

“The danger comes on the crosses, where euro-CAD in particular is testing and retesting important resistance and if it breaks, then we could, not for any fundamental reason, but for that reason alone, see Canada breaking lower on several crosses.”

BOND PRICES RISE

Canadian bond prices rose, unwinding some of Tuesday’s selloff after the Fed decision and statement.

“The Fed’s comments have led some to believe the Fed is more concerned about growth and less concerned about inflation, and that’s boosting the short end of the curve” said Eric Lascelles, chief economics and rates strategist at TD Securities.

Part of the gain in bonds was also due to results from mortgage lender Freddie Mac FRE.N, which posted its fourth consecutive quarterly loss, Lascelles said.

On the domestic data front, the July Ivey Purchasing Managers Index is due at 10 a.m., with June building permits coming Thursday, and the headline report for the week, the July jobs numbers, on Friday.

The two-year bond rose 5 Canadian cents to C$101.55 to yield 2.867 percent. The 10-year bond climbed 12 Canadian cents to C$104.62 to yield 3.684 percent.

The yield spread between the two-year and 10-year bond was 93.5 basis points, up from 90.8 basis points.

The 30-year bond added 11 Canadian cents to C$115.16 for a yield of 4.098 percent. In the United States, the 30-year treasury yielded 4.658 percent.

The three-month when-issued T-bill yielded 2.52 percent, down from 2.54 percent at the previous close.

Reporting by John McCrank; editing by Janet Guttsman

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