Canadian dollar falls 2 percent ahead of key data

Thu Oct 9, 2008 4:47pm EDT
 
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 * Canadian dollar down 5.6 pct so far this week
 * Focus on raft of data to be released on Friday
 * Bonds mixed as late stock slump reinvigorates safety bid
 By John McCrank
 TORONTO, Oct 9 (Reuters) - The Canadian dollar fell for the
sixth straight day against the U.S. dollar on Thursday as
investors positioned themselves ahead of a big day for Canadian
economic data on Friday.
 Bond prices were mixed as a big end-of-session retreat on
the Toronto Stock Exchange resulted in a safe haven bid for
government debt, pulling bonds off earlier lows.
 The Canadian dollar fell 2 percent against the U.S. dollar
to C$1.1458, or 87.28 cents, from C$1.1229 to the U.S. dollar,
or 89.06 cents, at Wednesday's close.
 The currency is down 5.6 percent so far this week, well on
its way to surpass its biggest weekly loss since at least 1970,
hit just last week when it took a 4.5 percent nose-dive.
Thomson Reuters data for weekly percentage changes in the
currency begins in 1970.
 "We are caught up in a violent reassessment of what's going
on with the global economy," said David Watt, senior currency
strategist at RBC Capital Markets.
 With the United States flirting with recession and the
global economy veering downward, the prospects for Canada's
economic growth are fading and the currency has been paying the
price.
 The United States buys three-quarters of Canada's exports.
Around half of Canadian exports are commodities, the prices of
which are falling along with demand as global economies
shrink.
 That puts the economic data due to be released Friday in
the spotlight. Reports include a jobs report for September,
international merchandise trade data for August, the new
housing price index for August, and the Bank of Canada's
Business Outlook Survey and Senior Loan Officer Survey.
 Employment has slowed markedly in Canada from last year's
furious pace of job growth and the trade balance is expected to
deteriorate now that commodity prices have softened.
 The results could lead to a bigger decline in in the
Canadian dollar, said Watt.
 "People aren't looking for reasons to buy. They're looking
for reasons to sell."
 BOND PRICES MIXED
 Bonds were mixed as slumping equity markets created
safe-haven demand, pulling bond prices up from earlier lows.
 Canadian bonds had been pressured lower along with the
larger U.S. market due to the massive new U.S. debt supply to
fund a host of U.S. programs intended to free up lending.
 "It's going to be raining bonds, basically, because the
U.S. Treasury and the Fed are going to take pretty much
anything as collateral and issue treasury bonds on the other
side, so there is definitely not going to be a shortage in
bonds," said Levente Mady, fixed income strategist at MF Global
Canada Co.
 However, a sharp slump on the Toronto Stock Exchange toward
the end of the session reinvigorated the safe haven bid that
has been supporting bonds in recent weeks.
 In times of economic uncertainty, investors often seek the
relative safety of government debt.
 The two-year bond rose 6 Canadian cents to C$101.28 to
yield 2.132 percent. The 10-year bond slipped 33 Canadian cents
to C$105.05 to yield 3.623 percent.
 The yield spread between the two-year and the 10-year bond
rose to 137 basis points from 133 basis points at the previous
close.
The 30-year bond dropped 55 Canadian cents to C$113.85 to
yield 4.167 percent. In the United States, the 30-year treasury
yielded 4.100 percent.
 The three-month when-issued T-bill yielded 1.80 percent, up
from 1.55 percent at the previous close.
 (Reporting by John McCrank; editing by Rob Wilson)