CANADA FX DEBT-Canada dollar falls on weak oil, equities

Fri Nov 14, 2008 4:56pm EST
 
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 * C$ slides 1.1 percent
 * Canada manufacturer shipments unexpectedly up 0.1 pct
 * Bond prices rise on weak U.S. data, falling stocks
 By Cameron French
 TORONTO, Nov 14 (Reuters) - The Canadian dollar retreated
versus the U.S. dollar on Friday as oil prices gave back some
of the previous day's gains, while sluggish equity markets
prompted risk-averse investors to embrace the greenback.
 Canadian bond prices rose alongside U.S. Treasuries, helped
by retreating stock markets and a report showing a record drop
in U.S. retail sales in October.
 The Canadian currency ended the session at C$1.2255 to the
U.S. dollar, or 81.60 U.S. cents, down from C$1.2115 to the
U.S. dollar, or 82.54 U.S. cents, at Thursday's close.
 "I think throughout the day trading is in line with the
selloff that we've seen on the commodity front as well as
equities," said Matthew Strauss, senior currency strategist at
RBC Capital Markets.
 Crude oil prices fell 2 percent, weakening the appeal of
Canada's oil and gas industry, while North American stocks fell
sharply -- Canada's main index dropped more than 3 percent --
giving back most of the previous day's strong gains.
 The Canadian dollar's weakness came despite government data
showing shipments by Canadian manufacturers unexpectedly rose
by 0.1 percent in September from August, driven by strong
demand in the aerospace industry. Analysts had been expecting a
1.5 percent drop in sales.
 Strauss said the Canadian economy's relative strength
versus other industrialized nations is having little impact on
the currency, which is instead reacting to the gloomy global
outlook for resource demand.
 The currency fell 3 percent versus the greenback during the
week, and is down more than 13 percent since the end of
September as demand for commodities such as oil, base metals,
and potash have continued to fall.
 "It's not so much the Canadian economy, but concerns about
the global economy, and I think that's capping any significant
Canadian dollar rally," Strauss said.
 "We don't see that concern evaporating in the near
future."
 The greenback has strengthened during the economic
uncertainty as investors have treated it as a safe-haven bid.
 Strauss said that a meeting of leaders of the G20 major
industrial and emerging nations this weekend would be closely
watched by market players, but would not likely have much of an
immediate impact on financial markets.
 BOND PRICES STRENGTHEN
 Canadian bond prices rose alongside U.S. Treasuries,
getting an initial boost from weak U.S. retail sales data, then
finishing the session strong as equity markets fell sharply in
the last hour of trading.
 U.S. sales dropped a record 2.8 percent in October,
government data showed. Sales excluding autos were down a
record 2.2 percent, versus market expectations of a 1.2 percent
fall.
 Eric Lascelles, chief economics and rates strategist at TD
Securities, said the weak report builds the case for more Bank
of Canada rate reductions, which could push bond prices
higher.
 "There's such a breadth of weakness in the details of the
report that just suggests the U.S. is going to be in a
sustained decline and that's going to weigh on central bank
rates, not just in the U.S. .., but in Canada as well."
 The Bank of Canada's overnight rate is currently at 2.25
percent, down from 4.5 percent last December.
 The Canadian overnight Libor rate LIBOR01 was 2.4667
percent, down from 2.5583 percent on Thursday.
 Thursday's CORRA rate CORRA= was 2.2460 percent, up
slightly from 2.2437 percent on Wednesday. The Bank of Canada
publishes the previous day's rate at around 9 a.m. daily.
 The two-year bond rose 6 Canadian cents to C$101.70 to
yield 1.895 percent. The 10-year bond climbed 95 Canadian cents
to C$104.95 to yield 3.630 percent.
 The yield spread between the two- and 10-year bond was 180
basis points, down from 182 at the previous close.
 The 30-year bond added C$1.45 to C$112.80 to yield 4.223
percent. In the United States, the 30-year Treasury yielded
4.204 percent.
 (Reporting by Cameron French; Editing by Peter Galloway)