CANADA FX DEBT-C$ rattled by slide in commodity prices

Wed Aug 26, 2009 4:29pm EDT
 
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 * Closes at C$1.0978 per US$, or 91.09 U.S. cents
 * C$ hits lowest level since Aug. 19
 * Weak commodity prices blamed for drop
 * Bond prices remain flat ahead of data
 (Updates to session close)
 By Frank Pingue
 TORONTO, Aug 26 (Reuters) - The Canadian dollar closed
lower against the greenback for the second straight session on
Wednesday as a drop in commodity prices forced the currency to
relinquish more of its recent gains.
 Commodity prices, which often influence the currency given
the nature of Canada's exports, were knocked lower after China
said it would act to restrict redundant investments across a
number of sectors. [ID:nPEK160728]
 The move lower was accentuated by a stronger U.S. currency,
which was boosted by data that offered investors fresh evidence
a modest economic recovery was taking place. [ID:nN26259327]
 The Canadian dollar hit a session low of C$1.1001 to the
U.S. dollar, or 99.90 U.S. cents, its lowest level since Aug.
19, before recovering slightly by the close.
 "Broad-based U.S. dollar strength ... and the selloff that
we saw in commodity markets due to the comments from China
regarding the possibility of curbing industrial overcapacity,"
were two reasons for the currency's retreat, said Matthew
Strauss, senior currency strategist RBC Capital Markets.
 "The correction itself is not a surprise, the magnitude is
a bit of a surprise. And the fact that we underperformed other
commodity peers ... also highlights increased volatility in the
Canadian dollar," Strauss added.
 The currency went on to finish at C$1.0978 to the U.S.
dollar, or 91.09 U.S. cents, according to the Bank of Canada's
official close, down from C$1.0858 to the U.S. dollar, or 92.09
U.S. cents, at Tuesday's close.
 That's well off the C$1.0718 to the U.S. dollar, or 93.30
U.S. cents, that it reached early on Tuesday, a gain that
unraveled after a Bank of Canada official warned that the
currency's strength could hurt the nation's economic recovery.
[ID:nN25220089]
 BONDS END FLAT
 Canadian bond prices, with no domestic data to influence a
move, followed the bigger U.S. Treasury market to a relatively
flat close across the curve.
 U.S. bonds ended flat as decent demand at an auction of
five-year notes helped to ease some of the worries over the
country's burgeoning debt.
 But moves in bond prices were kept to a minimum ahead of
key domestic economic data due out Friday, when Canada's
current account deficit is expected to reach C$11.10 billion
for the second quarter.
 Other domestic data due on Friday is expected to show
producer prices fell 0.5 percent in July, while raw materials
prices for the same month are expected to fall 3.0 percent.
 The two-year bond CA2YT=RR ended down 1 Canadian cent at
C$99.42 to yield 1.296 percent, while the 10-year bond
CA10YT=RR rose 5 Canadian cents at C$102.90 to yield 3.398
percent.
 The 30-year bond CA30YT=RR ended flat at C$118.50 to
yield 3.902 percent.
 Canadian bonds were mixed versus their U.S. counterparts
across the curve. The Canadian 30-year bond was 29.9 basis
points below the U.S. 30-year yield, versus 32.1 basis points
on Tuesday.
 (Editing by Rob Wilson)