September 11, 2008 / 8:54 PM / 9 years ago

Canadian dollar drops for fourth day as oil falls

* Canadian dollar ends session down 0.6 percent

* Bond rally reverses as rising equities lure investors

* Canada's July trade surplus misses expectations

By John McCrank

TORONTO, Sept 11 (Reuters) - The Canadian dollar fell for a fourth straight day against the U.S. dollar on Thursday, sliding 0.6 percent as oil prices dropped to near the psychologically important $100 a barrel level and drove down the commodity-linked currency.

Bond prices fell as rallying equities sapped the safe haven bid for government debt.

The Canadian dollar ended the North American session at C$1.0765 to the U.S. dollar, or 92.89 U.S. cents, down from C$1.0697 to the U.S. dollar, or 93.48 U.S. cents, at Wednesday's close.

The currency fell as low as C$1.0821 versus the greenback, or 92.41 U.S. cents, its lowest level in almost 13 months.

"We're seeing crude oil prices continue to sell off and approach the psychological $100 a barrel level, so I think that... continues to weigh on the Canadian dollar and that's likely to be the case going forward as well," said George Davis, chief technical strategist at RBC Capital Markets.

Canada is a major oil exporter and its currency is often influenced by moves in the commodity.

The price of U.S. crude oil CLc1 has fallen more than 30 percent since hitting a record high above $147 a barrel in mid-July as slowing global growth dents demand.

Davis said ongoing U.S. dollar strength has also been working against Canada's currency, helping push the (U.S.) dollar currency pair past a key technical level just below C$1.08. He said the next topside price targets for traders were C$1.0882 and C$1.0932.

BOND PRICES SAG

Canadian bond prices reversed after an early rise that was prompted by some weaker-than-expected Canadian data as a rallying Toronto stocks lured investors to make bets in equities, said Eric Lascelles, chief economics and rates strategist at TD Securities.

Statistics Canada said the country's trade surplus fell more than expected in July to C$4.85 billion, with imports rising twice as fast as exports.

Analysts had, on average, forecast a surplus of C$5.60 billion. Statscan revised the June surplus to C$5.64 billion from C$5.76 billion.

The two-year bond fell 4 Canadian cents at C$100.05 to yield 2.728 percent, while the 10-year lost 35 Canadian cents to C$106.15 to yield 3.497 percent.

The yield spread between the two-year and 10-year bond was 74.0 basis points, down from 76.1 basis points at the previous close.

The 30-year bond dropped 54 Canadian cents to C$117.66 for a yield of 3.964 percent. In the United States, the 30-year Treasury yielded 4.216 percent.

The three-month when-issued T-bill yielded 2.38 percent, down from 2.41 percent at the previous close. (Reporting by John McCrank; Editing by Peter Galloway)

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