Canadian dollar drops to weakest close in six weeks

Mon Jul 28, 2008 4:43pm EDT
 
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 * Canadian currency falls for fifth day vs U.S. dollar
 * Domestic bond prices rise on safe-haven bid
 * No key domestic economic data is due until mid-week
 By John McCrank
 TORONTO, July 28 (Reuters) - The Canadian dollar slipped to
its weakest close in six weeks against the U.S. dollar on
Monday, extending a slow slide driven by concerns about the
health of the economy of Canada's biggest trading partner.
 Domestic bond prices rose on the back of a safe-haven bid
as concerns over the state of the financial industry had
investors buying relatively stable government debt.
 The Canadian dollar closed at C$1.0230 to the U.S. dollar,
or 97.75 U.S. cents, down from C$1.0196 to the U.S. dollar, or
98.69 U.S. cents, at Friday's close.
 The currency fell to a low of C$1.0245 against the
greenback during the session, its weakest since mid-June. It
has fallen 2.1 percent in the past five days, hampered by a
variety of factors, such as softer oil prices,
weaker-than-expected Canadian data, and some U.S. dollar
strength.
 "It's been a  bit of a dog day for the Canadian dollar all
around, said Shaun Osborne, chief currency strategist at TD
Securities.
 The Canadian dollar ended down pretty much across the
board, more so against majors like the yen and the euro than
against the greenback, which was also hurt on the crosses.
 The main factor in Monday's weakness was concern over the
U.S. economy, where Canada sends over 75 percent of its
exports, said Osborne.
 "It's still very much the case that the Canadian cart is
hitched to the U.S."
 While the Canadian currency was weaker, it is still trading
well within the range it has occupied since falling from its
record high of US$1.1039 in November.
 "If we break above C$1.03, in the next little while, it
might suggest that we're seeing a real significant shift in
Canadian dollar sentiment," said Osborne.
 The first major Canadian data this week will come on
Wednesday with the industrial product price and raw materials
price indexes for June, due at 8:30 a.m. (1230 GMT). On
Thursday, Statistics Canada will report on gross domestic
product for May, also at 8:30 a.m.
 BONDS RISE
 Bond prices rose in response to lower equities, especially
the ongoing weakness in financial shares, which ramped up
demand for government debt.
 The Toronto Stock Exchange's financial index was down 2.2
percent on the day, and 5.5 percent over the past three
sessions.
 Compounding market jitters, U.S. regulators over the
weekend seized two small U.S. banks that were struggling under
the burden of the U.S. housing recession and the credit crunch,
selling them to Mutual of Omaha Bank.
 Looking forward, the Canadian bond market will likely take
its cues froom the larger U.S. market, said Doug Porter, deputy
chief economist at BMO Capital Markets.
 "The Canadian GDP number will be interesting, but it's
going to be completely overshadowed by the slate of crucial
U.S. economic data," he said.
 "On Friday we have a wave of U.S. economic numbers, all for
July, where we'll get a very good picture of how the economy is
doing in one day, between employment, ISM, and auto sales."
 The two-year bond rose 13 Canadian cents to C$101.21 to
yield 3.066 percent. The 10-year bond climbed 59 Canadian cents
to C$103.87 to yield 3.775 percent.
 The yield spread between the two-year and 10-year bond was
70.9 basis points, up from 69.8 basis points.
 The 30-year bond jumped 72 Canadian cents to C$114.64 for a
yield of 4.126 percent. In the United States, the 30-year
treasury yielded 4.615 percent.
 The three-month when-issued T-bill yielded 2.47 percent,
down from 2.48 percent at the previous close.
 (Editing by Frank McGurty)