Canadian dollar knocked down by lower oil prices

Wed Oct 15, 2008 9:56am EDT
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 * Lower price for oil dominating Canadian dollar's move
 * Canadian Conservatives win stronger minority government
 * Bonds mostly flat after sliding in previous session
 By Frank Pingue
 TORONTO, Oct 15 (Reuters) - The Canadian dollar fell versus
the U.S. dollar on Wednesday as the price of oil, a major
Canadian export, tumbled to a 13-month low, while news that
Canada had reelected a minority Conservative government had
little impact.
 Domestic bond prices were mostly flat following losses in
the previous session, helped partly by weak U.S. economic data
and expectations for more central bank rate cuts.
 At 9:30 a.m. (1330 GMT), the Canadian unit was at C$1.1668
to the U.S. dollar, or 85.70 U.S. cents, down from C$1.1616 to
the U.S. dollar, or 86.09 U.S. cents, at Tuesday's close.
 The bulk of the Canadian dollar's decline was being pegged
to the slide in crude prices to below $76 a barrel due to fears
that economic weakness will cut further into demand for crude.
 Canada is the biggest supplier of oil to the United States,
and commodities make up around half of Canadian exports.
 "The Canadian dollar is currently down and it seems to me
you have to pin the blame on oil prices because the economic
data that's come out has done no favors for the U.S. economy,"
said Eric Lascelles, chief economics and rates strategist at TD
 A steep slide in U.S. September retail sales, coupled with
a report that showed a measure of inflation eased, weighed on
the greenback and limited the Canadian dollar's fall.
 Lascelles also said he thought the Canadian dollar could
have strengthened a touch with the uncertainty of the Canadian
federal election now out of the way, but that other factors
trumped any benefits that it may have had.
 Canada's Conservative's won reelection late on Tuesday with
a significantly stronger minority government. It marks Canada's
third minority government in four years.
 "The election was never at the forefront of the market's
mind, obviously other considerations were dominating, and it's
not even clear to me that the sorts of campaign promises being
made by the parties would be of specific relevance to the
markets," said Lascelles.
 Canadian bond prices stuck near the break-even level as
dealers reassessed their decision to unload bond prices in the
previous session in favor of riskier assets like equities.
 The return to equities in the previous session was helped
by news that U.S. Treasury Department will inject $250 billion
of capital in major U.S. banks to help stabilize the financial
system and unfreeze lending.
 "People are realizing again that as much as there is good
news, let's keep in mind that central banks are likely to cut a
little bit further, as a result you can't really justify having
yields all that high," said Lascelles.
 The Canadian overnight Libor rate LIBOR01 was 3.425
percent, down from 3.625 percent on Tuesday.
 Tuesday's CORRA rate CORRA= was 2.5021 percent, down from
2.5042 percent on Monday. The Bank of Canada publishes the
previous day's rate at around 9 a.m. daily.
 The two-year bond was down 4 Canadian cents at C$100.80 to
yield 2.361 percent. The 10-year bond slid 10 Canadian cents to
C$103.32 to yield 3.823 percent.
 The yield spread between the two-year and the 10-year bond
moved to 114 basis points from 116 basis points at the previous
 The 30-year bond was up 17 Canadian cents at C$112.05 to
yield 4.266 percent. In the United States, the 30-year Treasury
yielded 4.279 percent.