Canadian dollar slips with commodity prices
* Canadian dollar slips 0.4 percent against greenback
* Bonds rise as investors look for safe havens
* July manufacturing sales higher than expected
By John McCrank
TORONTO, Sept 16 (Reuters) - The Canadian dollar fell against the U.S. dollar on Tuesday as commodity prices tilted lower amid the turmoil in financial markets.
Canadian bond prices rose in a safe haven bid.
At 9:42 a.m. (1342 GMT), the Canadian dollar was at C$1.0725 to the U.S. dollar, or 93.24 U.S. cents, down from C$1.0679 to the U.S. dollar, or 93.64 U.S. cents, at Monday's close.
Commodity prices weakened due to the uncertainty in the global financial system sparked by Lehman Brothers' bankruptcy protection filing on Monday, and some investors worry the turbulence will undercut demand.
Canada is a major exporter of many key commodities, including oil and gold, and its currency is often affected by movements in their prices.
The price of U.S. crude oil CLc1 tumbled more than 4 percent to under $92, well off its high of over $147 a barrel in mid July. See [ID:nSP317159]
Despite the selloff in commodities, the Canadian dollar weakened only slightly against the greenback and it made gains against many other major currencies.
Part of the reason, said Shane Enright, currency strategist at CIBC World Markets, is that the market has started to price in interest rate cuts in the United States to help offset the effects of the credit crunch and the weakening economy.
In Canada, rates are expected to hold steady for the foreseeable future.
"You've seen interest rate differentials, if you get six months out, improve in Canada's favor versus the U.S., and I think that's been a helpful development," Enright said.
The U.S. Federal Reserve makes a rate decision on Tuesday afternoon, and many in the market are expecting a 25-basis-point rate cut to lower the fed funds rate to 1.75 percent.
BONDS EXTEND GAINS
Canadian bonds rallied on a safe haven bid for a second straight day, but less so than the U.S. market.
"The fact that Canada's bond market has underperformed Treasuries reflects a little firmer environment in Canada than in the U.S.," said Sal Guatieri, senior economist at BMO Capital Markets.
Figures on Tuesday showed Canadian manufacturing sales rose more than twice as fast as expected in July, and this helped hold the rally in check. Shipments were up 2.7 percent from June due to broad-based strength led by the durable goods industries. See [ID:nN16300565]
The two-year bond rose 7 Canadian cents to C$100.73 to yield 2.407 percent, while the 10-year added 2 Canadian cents to C$107.17 to yield 3.374 percent.
The yield spread between the two-year and 10-year bond was 108 basis points, up from 101 basis points at the previous close.
The 30-year bond gained 5 Canadian cents to C$118.75 for a yield of 3.907 percent. In the United States, the 30-year treasury yielded 4.079 percent.
The three-month when-issued T-bill yielded 2.27 percent, up from 2.25 percent at the previous close. (Reporting by John McCrank; Editing by Peter Galloway)
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