October 22, 2008 / 1:52 PM / in 9 years

Canadian dollar tumbles to lowest level since 2005

* Canadian dollar flirts with levels below 80 U.S. cents

* Stronger U.S. dollar and weak oil blamed for slide

* Canadian retail sales fall 0.3 percent in August

By Frank Pingue

TORONTO, Oct 22 (Reuters) - The Canadian dollar tumbled to its lowest level versus the U.S. dollar in more than three years on Wednesday as lower oil prices and a stronger greenback combined to knock the currency below 80 U.S. cents.

Bond prices were higher across the curve as the latest economic data out of Canada, including retail sales, fell short of market estimates.

At 9:35 a.m. (1335 GMT), the Canadian unit was at C$1.2500 to the U.S. dollar, or 80.00 U.S. cents, down from C$1.2137 to the U.S. dollar, or 82.39 U.S. cents, at Tuesday’s close.

Earlier, the Canadian currency fell as low as C$1.2545 to the U.S. dollar, or 79.71 U.S. cents, a move blamed largely on a stronger U.S. dollar as investors liquidated riskier assets.

“The selloff that we’ve seen overnight was clearly the result of the U.S. dollar strength,” said Matthew Strauss, senior currency strategist at RBC Capital Markets. “But this morning, the selloff continued due to lower commodity prices.”

The price of oil, which often dictates direction in the Canadian dollar since Canada is a key supplier of oil to the United States, neared a 16-month low and managed to drag the Canadian currency along for the ride.

The Canadian dollar has now plummeted 20 percent this year, a move that wipes out its 17.5 percent surge last year when it rose above the U.S. dollar for the first time in more than 30 years and rallied as high as US$1.1039 last November.

The slide in the currency follows Tuesday’s Bank of Canada decision to cut its key overnight rate 25 basis points, slash its projections for economic growth and inflation, and suggest that more rate cuts are on the horizon.

And with no more Canadian data due on Wednesday, traders are awaiting the Bank of Canada’s Monetary Policy Report on Thursday for details on its views for the economy and inflation.

BOND PRICES HIGHER

Canadian bond prices tacked on to gains recorded in the previous session as the latest economic data from Canada missed expectations and kept investors interested in snapping up more secure government debt.

Retail sales in Canada fell 0.3 percent in August, which marked the first drop in six months and was steeper than the 0.2 percent slide that had been expected by market analysts.

Also Canada’s composite leading indicator fell 0.2 percent in September from August. The market had expected it to be unchanged.

The Canadian overnight Libor rate LIBOR01 was 2.3250 percent, down from 2.6250 percent on Tuesday.

Tuesday’s CORRA rate CORRA= was 2.2452 percent, down from 2.5048 percent on Monday. The Bank of Canada publishes the previous day’s rate at around 9 a.m. daily.

The two-year bond was up 3 Canadian cents at C$101.22 to yield 2.156 percent. The 10-year bond increased 18 Canadian cents to C$104.68 to yield 3.666 percent.

The yield spread between the two-year and the 10-year bond moved to 155 basis points from 154 basis points at the previous close.

The 30-year bond rose 40 Canadian cents to C$114.00 to yield 4.158 percent. In the United States, the 30-year Treasury yielded 4.133 percent. (Editing by Peter Galloway)

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