Canadian dollar weakens as commodity prices drop

Thu Mar 20, 2008 9:28am EDT
 
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 By Frank Pingue
 TORONTO, March 20 (Reuters) - The Canadian dollar tumbled
to a two-month low versus the U.S. dollar on Thursday due to a
combination of the unwind in commodity prices and a generally
stronger greenback.
 Domestic bond prices were pinned lower across the curve as
investors pocketed recent gains made given the nagging concerns
about a U.S. recession and the impact it could have on
Canada's economy.
 At 9:15 a.m. (1315 GMT), the Canadian unit was at C$1.0257
to the U.S. dollar, or 97.49 U.S. cents, down from C$1.0152 to
the U.S. dollar, or 98.50 U.S. cents, at Wednesday's close.
 The fall in the Canadian dollar to its lowest level since
Jan. 23 was triggered by a reversal of the factors that had
kept it propped above parity versus the greenback for much of
the past month.
 "Generally the Canadian dollar is remaining weak, though I
think it's more indicative of generalized strength in the U.S.
dollar," said Paul Ferley, assistant chief economist at Royal
Bank of Canada.
 "Abetting that trend is commodity prices moving lower and
that's contributing to an additional factor weighing on the
Canadian dollar, which had been riding the commodity price
boom."
 The Canadian dollar is often influenced by commodity prices
given the nature of Canada's exports. Oil prices slipped below
$100 a barrel and gold prices dropped 4 percent.
 The latest drop in the Canadian dollar comes on the heels
of its 2-percent slide on Wednesday as the market turned its
attention back to deteriorating global economic growth.
 Canada relies heavily on the United States for consuming
the bulk of its exports, so the latest slide in the domestic
currency will be welcomed with open arms by the manufacturers
in Ontario who ship their goods south of the border.
 "With concerns about weakness in the U.S. economy spilling
over into Canada, the dollar weakening off here provides a bit
of an offset, certainly in terms of activity here in Ontario,"
said Ferley.
 BONDS STUCK LOWER
 Canadian bond prices were under pressure across the curve
as the lack of any key data paved the way for investors to
pocket gains ahead of a long holiday weekend as most capital
markets will close for the Good Friday holiday.
 "It's mostly just profit-taking after some earlier strong
gains," said Ferley. "But generally, going forward, you're
pretty much going to see bonds be influenced in terms of what
happens with equities."
 North American stock markets are expected to open lower as
The United States digests weak jobless data while weaker
commodity prices weigh on Toronto stocks.
 The overnight Canadian Libor rate LIBOR01 was 3.6716
percent, down from 3.6833 percent on Wednesday.
 Wednesday's CORRA rate CORRA= was 3.4798 percent, up from
3.4747 on Tuesday. The Bank of Canada publishes the previous
day's rate at around 9 a.m. daily.
 The two-year bond was down 10 Canadian cents at C$102.75 to
yield 2.572 percent. The 10-year bond decreased 16 Canadian
cents to C$104.22 to yield 3.460 percent.
 The yield spread between the two- and 10-year bonds was
88.7 basis points, down from 91.8 points at the previous
close.
 The 30-year bond fell 18 Canadian cents to C$118.02 to
yield 3.950 percent. In the United States, the 30-year Treasury
yielded 4.201 percent.
 The three-month when-issued T-bill yielded 1.58 percent,
down from 1.94 percent at the previous close.
 (Editing by Renato Andrade)