Canada dollar slips on soft commodities, bonds fall

Tue Sep 16, 2008 5:15pm EDT
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By John McCrank

TORONTO (Reuters) - The Canadian dollar fell against the U.S. dollar on Tuesday due to soft commodity prices, but managed to make up some ground late in the session as markets cheered a report of a possible bailout for troubled insurer American International Group (AIG.N: Quote).

Canadian bond prices tumbled lower along with the larger U.S. market after the U.S. Federal Reserve held interest rates steady, and the AIG report surfaced.

The Canadian dollar ended the North American session at C$1.0695 to the U.S. dollar, or 93.50 U.S. cents, down from C$1.0679 to the U.S. dollar, or 93.64 U.S. cents, at Monday's close.

The currency hit a weak point of C$1.0750, or 93.02 U.S. cents, as commodity prices dropped on concerns that the global credit crunch and recent market turbulence would cut into demand.

Commodities make up about half of Canada's exports, and movements in the prices of oil, gold, base metals, and natural gas can influence the direction of Canada's currency.

The latest crisis in the global financial system was sparked by Lehman Brothers Holdings Inc's LEH.N bankruptcy protection filing on Monday.

The sale of investment firm Merrill Lynch MER.N increased the market concern, and AIG's inability to find cash heightened it to a fever pitch.

Late in the session, however, a report that U.S. authorities were considering a loan package for AIG buoyed markets.   Continued...

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