April 15, 2008 / 1:52 PM / 10 years ago

Loonie dips on credit concerns

TORONTO (Reuters) - The Canadian dollar fell a tad against the U.S. dollar on Tuesday, as credit concerns overshadowed record prices for oil, a key Canadian export.

Canadian bond prices dipped, along with the larger U.S. market.

At 9:30 a.m. EDT, the Canadian dollar was at C$1.0200 to the U.S. dollar, or 98.04 U.S. cents, down from C$1.0196 to the U.S. dollar, or 98.08 U.S. cents, at Monday’s close.

The currency had risen as high as C$1.0165, or 98.38 U.S. cents, during the overseas session but was unable to maintain its momentum as credit fears dominated.

“There is still quite a bit of uncertainty out there, especially in the next couple of weeks where we are moving into the (U.S.) bank earnings window,” said George Davis, chief technical strategist at RBC Capital Markets.

“People are very nervous that we are going to get some more sizable writedowns.”

U.S. financial heavyweights Merrill Lynch MER.N and Citigroup (C.N) are due to report results later in the week. Analysts say both could announce billions of dollars of writedowns on bad debt.

On Monday, Wachovia, the fourth largest U.S. bank, announced a surprise first-quarter loss linked to credit problems and bad debt.

Record high oil prices gave little support to the Canadian dollar, even though oil is a major Canadian export and has been key in the currency’s 60-percent run-up since 2002 against the U.S. dollar.

Investors have been paying less attention to the commodity since the Canadian dollar hit its modern-day high of US$1.1039 in November, said Davis.

“Towards the end of last year, the subprime crisis really got a lot nastier and banks started to take sizable writedowns and the market started to perceive high commodity prices as perhaps a negative to global growth,” said Davis.

U.S. crude oil futures surged above $113 a barrel due to a weak greenback and supply disruptions ahead of the peak U.S. driving season.

Upcoming domestic data includes the survey of manufacturing for February on Wednesday and the more closely watched consumer price index data for March on Thursday.

BONDS FALL

Canadian bond prices, with a lack of domestic data to influence direction, followed the larger U.S. market lower.

U.S. data showed a bigger-than-expected rise in producer prices, and the New York Fed manufacturing index came in much higher than consensus expectations, reducing the safe-haven appeal of government debt.

“The strong U.S. numbers are prompting a sell-off,” said Eric Lascelles, chief economics and rates strategist at TD Securities.

The overnight Canadian Libor rate was 3.4000 percent, down from 3.4183 percent on Monday.

Monday’s CORRA rate was 3.4878 percent, up from 3.4851 percent on Friday. The Bank of Canada publishes the previous day’s rate at around 9 a.m. daily.

The two-year bond fell 8 Canadian cents to C$102.18 to yield 2.686 percent. The 10-year bond dipped 14 Canadian cents to C$103.24 to yield 3.579 percent.

The yield spread between the two- and 10-year bonds was 89.3 basis points, down from 91.4 at the previous close.

The 30-year bond slid 17 Canadian cents to C$115.33 to yield 4.094 percent. In the United States, the 30-year Treasury yielded 4.402 percent.

The three-month when-issued T-bill yielded 2.44 percent, up from 2.38 percent at the previous close.

Editing by Bernadette Baum

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