Canadian dollar extends losing streak as oil falls

Tue May 27, 2008 4:57pm EDT
 
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 * Canadian dollar falls with oil against greenback
 * Currency has declined for the past four sessions
 * Bonds fall on inflation concerns
 By John McCrank
 TORONTO, May 27 (Reuters) - The Canadian dollar fell
against the U.S. dollar for the fourth-straight session on
Tuesday, hampered by a drop oil prices.
 Bond prices, with no Canadian economic data to consider,
tilted lower on inflation concerns.
 The Canadian dollar closed at US$1.0067, valuing a U.S.
dollar at 99.33 Canadian cents, down from US$1.0081, valuing a
U.S. dollar at 99.20 Canadian cents, at Monday's close.
 The currency hit a high of US$1.0133, valuing a U.S. dollar
at 98.69 Canadian cents, during the overnight session,
supported by a report Monday that Talisman Energy Inc TLM.TO
could be an acquisition target, as well as by lofty commodity
prices.
 But the Talisman rumor was swept aside and oil prices fell
sharply during the session, dragging the Canadian dollar from
its peak.
 The price of U.S. crude oil CLc1 tumbled as much as $4
due to a stronger greenback and worries that Asian countries
could ease fuel subsidies and dampen demand. See [ID:nSP23355]
 Canada is a major oil exporter and its dollar is often
influenced by moves in the price of the commodity.
 Much of the Canadian dollar's nearly 17.5 percent rise last
year was attributed to higher oil prices, but while oil has
soared almost 40 percent this year, the Canadian dollar is up
just 0.5 percent.
 "The medium- or long-term correlation with oil isn't
holding, but there is some pressure on the intraday, and when
we see oil moving as fast as it did today I think that does
pressure the Canadian dollar," said Camilla Sutton, currency
strategist at Scotia Capital.
 Despite the lackluster performance of the Canadian dollar
of late, Sutton said she expects the currency to outperform the
U.S. dollar in the medium term.
 "There is a small bias for Canadian dollar strength, but
not the way we saw in 2007," she said.
 While Canadian economic growth is moderating, the country
is still better off on a relative basis than the United States.
And while the high price of oil has been somewhat neutral for
the currency, it is still a net benefit to Canada, said
Sutton.
 BOND PRICES FALL
 Canadian bond prices fell as investors bet the Bank of
Canada, along with the U.S. Federal Reserve, would soon reverse
course in monetary policy and begin raising interest rates.
 "Yields continue to go up in anticipation that at some
point central banks will hike rates because of inflation
concerns, but I think that those concerns are misplaced," said
Carlos Leitao, chief economist at Laurentian Bank of Canada.
 Bond prices and yields move in opposite directions.
 Leitao said he believes the U.S. economy has not yet hit
bottom, and the Fed will have to think twice about raising
interest rates, despite higher food and energy prices.
 The key Canadian data for the week is not due until Friday,
when the first-quarter gross domestic product report is
released.
 The two-year bond fell 9 Canadian cents to C$101.34 to
yield 3.059 percent. The 10-year bond dropped 14 Canadian cents
to C$102.59 to yield 3.659 percent.
 The yield spread between the two- and 10-year bond was 68.2
basis points, up from 63.6 at the previous close.
 The 30-year bond shed 39 Canadian cents to C$115.06 for a
yield of 4.106 percent. In the United States, the 30-year
Treasury yielded 4.643 percent.
 The three-month when-issued T-bill yielded 2.71 percent, up
from 2.67 percent at the previous close.