Canada dollar falls, US$ regains safe-haven status

Tue Oct 7, 2008 10:35am EDT
 
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 * Canadian dollar falls 0.2 percent versus greenback
 * U.S. Federal Reserve backs up commercial paper market
 * Bond prices fall on Fed move, unwind from Monday
 By Jennifer Kwan
 TORONTO, Oct 7 (Reuters) - The Canadian dollar fell against
the U.S. dollar again on Tuesday as persistent concerns about
fallout from the global financial crisis overcame a rebound in
commodity prices.
 Bond prices fell as investors sought bargains in equity
markets following Monday's big stock market drops.
 At 9:50 a.m. (1350 GMT), the Canadian dollar was at
C$1.1013 to the U.S. dollar, or 90.80 cents, down from C$1.0992
to the U.S. dollar, or 90.98 cents, at Monday's close.
 The currency was 0.2 percent lower against its U.S.
counterpart after dropping 1.6 percent on Monday, mostly in
response to a stronger U.S. dollar.
 "We've seen some further weakness in the Canadian dollar as
generally the U.S. dollar remains fairly firm," said Doug
Porter, deputy chief economist at BMO Capital Markets.
 A dwindling supply of U.S. dollars in foreign exchange
markets was making them more expensive to buy relative to other
currencies.
 The U.S. 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.
 "Of course, the big news overnight was the aggressive rate
cut by the Australian central bank," Porter said. "That has
taken another swipe at the Australian dollar, and it's also
ramped up the chatter of possibly wider rate cuts more
broadly."
 The Reserve Bank of Australia cut interest rates by 100
basis points to 6.0 percent, putting pressure on other central
banks to lower the cost of borrowing in the face of a possible
global recession.
 A rise in commodities prices failed to give the
resource-linked Canadian dollar a boost as concerns over
weakening global demand dominated.
 "We're seeing more concerns about the potential for further
weakness in commodities markets as the global economy slows
further," Porter said.
 About half of Canada's exports consist of commodities such
as oil, natural gas, gold, and base metals.
 BOND PRICES FALL
 Canadian bond prices were lower in an unwind of Monday's
safe-haven bid when the Toronto Stock Exchange fell below the
10,000 point mark for the first time in more than three years.
 Adding to the drop was an announcement by the U.S. Federal
Reserve that it would create a special purpose facility to
begin buying commercial paper in a move to calm jittery
markets.
 "We've got yields up on the announcement by the Fed that
they're going to be buying commercial paper directly," said
Mark Chandler, fixed income strategist at RBC Capital Markets.
 "It's unprecedented -- the Fed buying unsecured assets like
that," he added. "What it does is it lends some hope that the
logjam of commercial credit at the very front end will ease
somewhat."
 Yields move opposite to bond prices.
 As well on Tuesday, the Bank of Canada said it will not
join in coordinated central bank actions aimed at increasing
U.S. dollar liquidity. It said the Canadian financial sector is
currently well supported.
 The Canadian overnight Libor rate LIBOR01 was 3.842
percent, up from 3.750 percent on Monday.
 Monday's CORRA rate CORRA= was 2.9226 percent, down from
3.0405 percent on Friday. The Bank of Canada publishes the
previous day's rate at around 9 a.m. daily.
 The two-year bond fell 8 Canadian cents to C$101.00 to
yield 2.269 percent. The 10-year bond dropped 32 Canadian cents
to C$106.33 to yield 3.471 percent.
 The yield spread between the two-year and the 10-year bond
fell to 117 basis points from 118 basis points at the previous
close.
The 30-year bond fell 65 Canadian cents to C$116.45 to yield
4.026 percent. In the United States, the 30-year Treasury
yielded 4.024 percent.
 The three-month when-issued T-bill yielded 1.55 percent,
unchanged from the previous close.
 (Reporting by Jennifer Kwan; Editing by Peter Galloway)