Loonie sags as risk aversion helps greenback

Mon Sep 15, 2008 10:30am EDT
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By John McCrank

TORONTO (Reuters) - The Canadian dollar fell 0.9 percent against the U.S. dollar on Monday as risk aversion resurfaced as the dominant theme in the markets after Lehman Brothers Holdings Inc LEH.N filed for bankruptcy protection, giving a bid to the greenback and weakening commodity prices.

Canadian bond prices rallied with the larger U.S. market as investors moved out of equities and into more secure government debt.

At 9:44 a.m. EDT, the Canadian dollar was at C$1.0712 to the U.S. dollar, or 93.35 U.S. cents, down from C$1.0611 to the U.S. dollar, or 94.24 U.S. cents, at Friday's close.

Lehman Brothers Holdings filed for bankruptcy protection early on Monday after failing to finance all the risky bets it made, mainly in real estate, making it the biggest casualty so far of the global credit crisis.

Adding to the worries, Merrill Lynch agreed to be taken over and the U.S. Federal Reserve broadened the collateral it would accept from investment banks for direct loans.

"Right now, we're seeing a spike in risk aversion over the mounting uncertainty about the global growth outlook," said George Davis, chief technical strategist at RBC Capital Markets.

"A lot of people are concerned that given the sharp rise in risk aversion, there is going to be a lot of repatriation of funds and it's become a lot more difficult to obtain financing in U.S. dollars because of the credit dislocation, so that makes the U.S. dollar that much more in demand."

Commodity prices were also affected by the market turmoil, which was seen dampening demand. Canada is a major exporter of many key commodities, including oil and gold, and its currency is often influenced by moves in their prices.   Continued...