Dollar hits 6-week high as greenback tanks

Tue Jul 15, 2008 10:30am EDT
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar raced to a six-week high on Tuesday as pressing concerns about the health of the U.S. financial sector pulled the greenback lower while the Bank of Canada held interest rates steady.

Domestic bond prices remained higher across the curve as dealers unloaded risky assets like stocks to scoop up more secure investments like government debt given the worsening effects of the credit crisis.

At 10:05 a.m., the Canadian currency was at US$1.0002, valuing a U.S. dollar at 99.98 Canadian cents, up from C$1.0052 to the U.S. dollar, or 99.48 U.S. cents, at Monday's close.

Earlier, the domestic currency rose as strong as US$1.0022, valuing a U.S. dollar at 99.78 Canadian cents, its highest since June 3.

The rally in the Canadian dollar came alongside rallies in a number of other currencies as the U.S. government's plan to boost confidence in the financial system left wider concerns after a positive initial reaction.

Last week, U.S. banking regulators seized mortgage lender IndyMac Bancorp Inc after withdrawals by panicked depositors led to the third-largest banking failure in U.S. history.

Over the weekend the U.S. government tried to reinstate market confidence with a package to shore up Freddie Mac and Fannie Mae, the two largest U.S. providers of mortgage funding.

"People are focused on what could be not a single event but more a bleeding of the U.S. financial system," said David Watt, senior currency strategist at RBC Capital Markets.   Continued...

<p>A Canadian one dollar coin, also know as a loonie, is shown in Montreal, April 28, 2006. REUTERS/Shaun Best</p>