CANADA FX DEBT-C$ knocked back down on recession worries

Tue Nov 18, 2008 4:29pm EST
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 * Canadian dollar falls to lowest close in a week
 * Nagging concerns about global recession blamed for drop
 * Most bond prices follow U.S. debt market to higher close
 By Frank Pingue
 TORONTO, Nov 18 (Reuters) - The Canadian dollar closed at
its lowest level in a week against the U.S. dollar on Tuesday
as the growing prospects of a global recession convinced
traders to unwind gains recorded in the previous session.
 Domestic bond prices, with no Canadian economic data to
consider, finished higher alongside a rally in the larger U.S.
debt market after a U.S. report eased inflation worries.
 The Canadian dollar closed at C$1.2299 to the U.S. dollar,
or 81.31 U.S. cents, down from C$1.2232 to the U.S. dollar, or
81.75 U.S. cents, at Monday's close.
 While the Canadian currency has managed to attract pockets
of buying interest, its general trend over the past two months
has been to head lower as concerns about the global economy
have intensified.
 That, along with sharp slides in prices for key commodities
that Canada exports, have shared the blame for the bulk of the
currency's 13 percent slide since the end of September.
 "It's starting to sound like a broken record these days,
just the same steady drumbeat of dismal news," said Sal
Guatieri, senior economist at BMO Capital Markets.
 The Canadian dollar and most other major currencies fell
against the U.S. dollar on Tuesday as investor worries about a
deepening global slowdown sapped demand for risk and prompted
investors to seek out the relative safety of the greenback.
 The slide followed news on Monday that Citigroup Inc, the
No. 2 U.S. bank, planned to cut 52,000 jobs by early next year
to help it weather global financial turmoil.
 Most traders tend to agree that the Canadian dollar will be
unable to attract any sustained buying interest until there are
clear signs of credit conditions improving and financial flows
returning to normal.
 Moves in the currency could get some domestic influence as
Bank of Canada Governor Mark Carney is scheduled to give a
speech to the Canada-United Kingdom Chamber of Commerce early
on Wednesday, followed by a press conference.
 Also, domestic wholesale trade data for September is due on
Thursday while the more key October consumer price index data
will be released on Friday.
 Canadian bond prices rallied on the long end of the curve
but slipped slightly on the short end as data from the United
States showed a record drop in producer prices.
 The report added to evidence that inflation pressures are
fast disappearing which, along with concerns about a sharp
global recession, added to the lure of more secure assets like
government debt.
 "It's just a bond bull's dream come true," said Guatieri.
 The two-year bond fell 7 Canadian cents to C$101.64 to
yield 1.925 percent. The 10-year bond rose 22 Canadian cents to
C$105.67 to yield 3.543 percent.
 The yield spread between the two-year and 10-year bond was
163 basis points, down from 182 at the previous close.
 The 30-year bond added 40 Canadian cents to C$114.45 to
yield 4.132 percent. In the United States, the 30-year treasury
yielded 4.130 percent.