January 15, 2009 / 4:05 PM / 9 years ago

CANADA FX DEBT-C$ hits one-month low as oil falls below $36

* C$ at one-month low as oil drops after OPEC forecast

* Bonds rise as Toronto stocks fall more than 1.5 percent

By Jennifer Kwan

TORONTO, Jan 15 (Reuters) - The Canadian dollar weakened to a one-month low against the U.S. currency on Thursday as the price of oil fell below $36 a barrel on gloom about the health of the global economy.

Domestic government bond prices followed U.S. Treasuries higher, with both markets boosted by safe haven buying as stocks fell on fears about the U.S. banking sector. Toronto’s main stock index .GSPTSE shed more than 1.5 percent.

At 11:00 a.m. (1600 GMT), the Canadian currency was at C$1.2647 to the U.S. dollar, or 79.07 U.S. cents, down from C$1.2483 to the U.S. dollar, or 80.11 U.S. cents, on Wednesday.

The Canadian dollar at one point touched C$1.2651, or 79.04 U.S. cents, its weakest level since December 10.

The unit has fallen in the previous four sessions as data and reports on both sides of the border intensified fears about the depth of the global economic downturn.

U.S. economic data on Thursday, including weekly jobless claims and producer prices, added to that dour picture. [ID:nN15511415]

For the most part, the Canadian currency will likely track movements in other currencies such as the euro, which see-sawed after the European Central Bank cut its benchmark interest rate by 50 basis points to 2.0 percent [ID:nSP426586] said Shane Enright, currency strategist at CIBC World Markets.

As well, the Canadian dollar is likely to be swayed by any movements in commodity prices.

“It feels like a day where you’ve got some trading flow just around this 80 cent level,” said Enright. “There’s nothing specific in the market here today, I don’t think, that’s going to drive the currency too far from here.”

The price of oil CLc1 slipped to below $36 a barrel on economic gloom and as OPEC cuts its 2009 demand forecast [ID:nSYD138214], while gold and some base metals also weakened. [ID:nLE412902]

Canada is a major oil producer and exporter, and movements in the price of crude and other commodities often sway the Canadian currency. Oil has fallen from a peak price above $147 a barrel reached last July.

“The commodity picture is still very negative. The U.S. dollar picture is positive. Both of those things are, unfortunately, a bad combination for the Canadian dollar, at least in the short term,” added Enright.

The Canadian currency has in recent sessions been pressured by a string of sullen economic data and reports, including Wednesday’s poor U.S. retail sales reading and a Conference Board of Canada forecast that said Canada’s economy will stay in a recession for three quarters.

BONDS HIGHER

Canadian bond prices were largely higher across the curve as investors dumped riskier assets and sought some refuge in government debt.

“There’s no economic data in Canada, but in the U.S. we got a higher than expected jobless claims, which is a positive development generally for bonds,” said Mark Chandler, fixed income strategist RBC Capital Markets.

The two-year bond was down 4 Canadian cents at C$103.34 to yield 0.940 percent, while the 10-year bond rose 30 Canadian cents to C$114.35 to yield 2.520 percent.

The yield spread between the two-year and 10-year bond was 158 basis points, versus 162 at the previous close.

The 30-year bond climbed 45 Canadian cents to yield 3.406 percent. In the United States, the 30-year Treasury yielded 2.8320 percent. (Reporting by Jennifer Kwan)

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