CANADA FX DEBT-C$ pummeled by commodities, stock rout

Thu Nov 20, 2008 4:35pm EST
 
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 * Canadian dollar falls 3.2 percent versus greenback
 * Bonds rally on safe-haven bid
 * Canada September wholesale trade rises unexpectedly
 By John McCrank
 TORONTO, Nov 20 (Reuters) - The Canadian dollar lost 2-1/2
U.S cents against the U.S. dollar on Thursday as commodity
prices weakened and global stock markets were routed.
 Canadian bond prices surged as the weakness in stock
markets made government debt more attractive.
 The Canadian dollar ended the North American session at
C$1.2935 to the U.S. dollar, or 77.31 U.S. cents, down from
C$1.2526 to the U.S. dollar, or 79.83 U.S. cents, at
Wednesday's close.
 The currency is down more than 22 percent versus the
greenback so far this year.
 "With crude posting at sub-$50 and the TSX effectively
melting away, the factors are all lined up for a weaker
Canadian dollar," said Jack Spitz, managing director of foreign
exchange at National Bank Financial.
 Canada is the biggest supplier of oil to the United States,
and the decline of U.S. crude oilCLc1 to below $50 a barrel
from a peak of over $147 in July has hurt the outlook for
Canadian economic growth, and the Canadian dollar has fallen
with it.
 Commodity prices in general have taken a beating as the
global economy inches closer to recession and demand falls.
 The Toronto Stock Exchange's composite index, heavily
weighted in commodity stocks, lost 9 percent of its value on
Thursday as stock markets around the world declined.
 Almost paradoxically, the U.S. dollar has been benefiting
from the economic distress, as market players "deleverage", or
repatriate funds.
 Over the past several years, U.S. investors built up a
large, overweight position in overseas stocks, and as risk
aversion increases, many of them are pulling their money out of
those markets and bringing it back to the United States,
boosting the greenback.
 The Canadian dollar is close to its October low of around
C$1.30. If it passes that point, it will be at its weakest
level since September 2004.
 NBF's Spitz said that is a likely scenario.
 "I don't think there's anything material in the way that's
going to reverse it," he said. "Factors that would otherwise
move the Canadian dollar stronger are few, fleeting, and far
between."
 BONDS SURGE
 Canadian bond prices rallied as the weakness in equities
increased the allure of relatively safe government debt.
 While rallying strongly, they still underperformed U.S.
Treasuries, however.
 "There's a massive flight to buying of U.S. Treasuries and
a view that the U.S. economy is headed for a deeper recession
than Canada is," said Sal Guatieri, senior economist at BMO
Capital Markets.
 On the economic data front, Canadian wholesale trade
numbers for September surprised to the upside, rising 1.5
percent as auto sales rose .See [ID:nN20480398]
 The market was expecting a 0.3 percent decline in the
month, according to a Reuters poll.
 The Canadian data did not move the markets as it was
released at the same time as U.S. jobless claims figures, which
were well below expectations.
 Canadian inflation data for October is due on Friday.
 The two-year bond rose 26 Canadian cents to C$101.92 to
yield 1.783 percent. The 10-year bond rose C$1.12 to C$107.12
to yield 3.368 percent.
 The yield spread between the two-year and 10-year bond was
172 basis points, up from 158 at the previous close.
 The 30-year bond added C$2.20 to C$117.70 to yield 3.958
percent. In the United States, the 30-year Treasury yielded
3.578 percent, its lowest ever.
 (Editing by Peter Galloway)