Canada dollar dips on recession concern; bonds up

Fri Oct 17, 2008 4:55pm EDT
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 * Canadian dollar ends lower for third straight week
 * Market fully expecting Bank of Canada rate cut
 * Bond prices supported by signs of global recession
 By Frank Pingue
 TORONTO, Oct 17 (Reuters) - The Canadian dollar ended lower
versus the U.S. dollar on Friday due to nagging uncertainty
about the outlook for the global economy, but a rally in stock
markets and commodities help to cushion its fall.
 Canadian bond prices were higher across the curve as market
expectations for a Bank of Canada rate cut early next week and
persistent talk of a global recession were enough to keep more
secure assets like government debt in demand.
 The Canadian dollar closed at C$1.1869 to the U.S. dollar,
or 84.25 U.S. cents, down from C$1.1816 to the U.S. dollar, or
84.63 U.S. cents, at Thursday's close.
 For the week, the currency fell 0.5 percent, which marked
its third straight losing week. Last week, the currency fell
8.4 percent.
 A rally on the Toronto Stock Exchange and a rebound in
prices for oil and other key Canadian exports helped lift the
Canadian dollar from its session low of C$1.1927 to the U.S.
dollar, or 83.84 U.S. cents.
 But it was not enough to award the Canadian dollar a second
straight winning session. The currency has not had back-to-backgains since Sept. 25 and 26.
 "Better commodity prices, and equity markets returning,
favored cyclical and commodity-based currencies including the
Canadian dollar," said Matthew Strauss, senior currency
strategist at RBC Capital Markets.
 "But just going into the weekend investors might have shied
away from being too long in the risky asset classes including
equities, commodities and, by extension, being too long in
commodity-based currencies like the Canadian dollar."
 Unlike recent weeks, moves in the Canadian dollar have
become much more muted, which Strauss said is a sign that
markets have started to show some semblance of stability.
 The slide in the Canadian dollar was cushioned by U.S. data
that showed housing starts continued to decline in September,
which ate away at some of the greenback's gains.
 Canadian bond prices were mostly higher as dealers returned
their focus to interest rates and the possibility of a
50-basis-point interest rate cut by the Bank of Canada next
 The Bank of Canada unexpectedly cut its key interest rate
50 basis points last week in a coordinated move with other
central banks to help calm ailing financial markets.
 And a Reuters poll conducted on Friday showed the majority
of Canada's primary dealers expect another 50-basis-point rate
cut when the bank makes a scheduled rate announcement on
 The two-year bond rose 9 Canadian cents to C$100.99 to
yield 2.267 percent. The 10-year bond increased 31 Canadian
cents to C$104.21 to yield 3.724 percent.
 The yield spread between the two-year and the 10-year bond
moved to 123 basis points from 120 basis points at the previous
 The 30-year bond dropped 20 Canadian cents to C$112.50 to
yield 4.241 percent. In the United States, the 30-year Treasury
yielded 4.312 percent.
 (Editing by Peter Galloway)