CANADA FX DEBT-C$ hit again by soft global economic outlook

Mon Oct 27, 2008 4:33pm EDT
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 * Dark global economic outlook weighs on Canadian dollar
 * Canadian dollar's October slide now at 17 percent
 * Bond prices rally on safe-haven hopes
 By Frank Pingue
 TORONTO, Oct 27 (Reuters) - The Canadian dollar closed at
its lowest level against the U.S. dollar in more than four
years on Monday as uncertainty about the global economy weighed
on the commodity-linked currency.
 Bond prices finished mostly higher as investors opted for
more secure government debt as equity prices tumbled and global
recession fears deepened.
 The Canadian dollar closed at C$1.2889 to the U.S. dollar,
or 77.58 U.S. cents, down 1 percent from C$1.2729 to the U.S.
dollar, or 78.56 U.S. cents, at Friday's close.
 Just after midday, the currency fell to C$1.2930 to the
U.S. dollar, or 77.09 U.S. cents, its lowest level since
September 2004.
 The Canadian currency has fallen 17 percent in October as
the global financial crisis has become more severe. Any small
gains it has recorded have almost always been followed by
 The continued slide in the Canadian dollar has been pegged
to a slew of factors that have included lower prices for the
commodities that Canada exports, tumbling equity markets and
the uncertain economic environment.
 Adding to the drag was a selloff of many currencies versus
the U.S. dollar as people were forced out of long positions,
leaving the Canadian dollar to take the brunt of the selloff.
 "A lot of people were probably overweight Canada or holding
long Canadian dollar positions and I think we are still seeing
an exodus from those positions," said Steve Butler, director of
foreign exchange trading at Scotia Capital.
 "It just seems like the market is bailing out of Canada ...
it's going to take a long time to work our way through all this
before we can safely say it's over."
 With no Canadian economic data due until later in the week,
the currency's direction until then will likely be dictated by
overall market sentiment.
 The Canadian industrial product price index and the raw
materials price index for September are due out on Thursday,
followed by Friday's gross domestic product report for August.
 Canadian bond prices rallied on the short end of the curve
as investors shed stocks and other risky assets for debt ahead
of an expected rate cut by the U.S. Federal Reserve on
 The Toronto Stock Exchange's main index closed more than 8
percent lower in a slide led by the heavyweight energy group.
 "There's not a lot of liquidity out there right now as
we're getting into the month end and everyone is just seeking
safety," said Sheldon Dong, fixed income analyst at TD
Waterhouse Private Investment.
 "So bonds are up just in reaction to the weak equity market
on the TSX and still there's a bit of a safety bid with all of
the uncertainty out there."
 The two-year bond rose 6 Canadian cents to C$101.38 to
yield 2.072 percent. The 10-year bond increased 16 Canadian
cents to C$105.09 to yield 3.616 percent.
 The yield spread between the two-year and the 10-year bond
moved to 164 basis points from 160 at the previous close.
 The 30-year bond dipped 5 Canadian cents to C$114.55 to
yield 4.128 percent. In the United States, the 30-year Treasury
yielded 4.070 percent.
 (Editing by Peter Galloway)