Dollar drops with commodities, stocks

Tue Sep 9, 2008 5:32pm EDT
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By John McCrank

TORONTO (Reuters) - The Canadian dollar fell more than half a cent against the U.S. dollar on Tuesday as commodity prices weakened, leading to Toronto stocks taking a drubbing and a drop in demand for the currency to buy Canadian assets.

Bond prices rose on a safe haven bid as Canadian stocks fell sharply on the commodity slump, causing 30-year government bond yields to touch a record low.

The Canadian unit closed the North American session at C$1.0706 to the U.S. dollar, or 93.41 U.S. cents, down from C$1.0647 to the U.S. dollar, or 93.92 U.S. cents, at Monday's close.

Canada is a major exporter of commodities and a recent downturn in the commodity cycle has weighed heavily on its markets.

The price of U.S. crude oil is down almost 30 percent from the record high above $147 a barrel it hit in July, and gold is sitting at a three-week low of $776 an ounce, well off the record high of $1,030.80 an ounce it hit in March.

The Toronto Stock Exchange closed the session down 487.88 points, led by a 6.5 percent fall in the energy sector and a 8.2 percent fall in the materials sector.

The TSX has fallen 20 percent from the record high reached in June, and that is hurting Canada's currency, said Shane Enright, currency strategist at CIBC World Markets.

"We have seen some interest from some of the real money players to switch out of the Canadian asset market and into the U.S. asset market and that's been reflected in the TSX and I think it's been reflected in the lagged Canadian dollar performance," he said.   Continued...