Canadian dollar slides on U.S. recession fears

Thu Jan 31, 2008 5:40pm EST
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 TORONTO, Jan 31 (Reuters) - The Canadian dollar tumbled
back below parity with the greenback on Thursday on fears the
United States, by far Canada's biggest trading partner, is
teetering on the brink of a recession.
 Domestic bond prices finished nearly flat, reversing an
earlier rally, after assurances from a major U.S. bond insurer
about the state of its business calmed jittery nerves.
 The Canadian dollar closed at C$1.0038 to the U.S. dollar,
or 99.62 U.S. cents, down from US$1.0068, valuing a U.S. dollar
at 99.32 Canadian cents, at Wednesday's close.
 Despite recent market volatility, the Canadian dollar ended
down just 0.7 percent for the month of January.
 "Until we have a real catalyst that breaks us out of there,
I think we're really kind of stuck hovering on either side of
parity, while making these really big intraday moves," said
Camilla Sutton, a currency analyst at Scotia Capital.
 "We're seeing that same story with the tug-of-war between
global growth concerns and a weak U.S. dollar and how that
plays out for the Canadian dollar."
 The Canadian currency began the session above parity with
the greenback, which lost some favor with investors after the
U.S. Federal Reserve cut it's key lending rate by half a
percentage point on Wednesday.
 But the Canadian currency lost ground after a U.S. report
showed weekly jobless claims were much higher than expected,
stoking U.S. recession fears and putting pressure on the
Canadian currency.
 A recession in the United States would undoubtedly have a
negative impact on Canada, which sends the bulk of its exports
to the United States.
 Meanwhile, a piece of domestic data showing Canada's
economic growth fell, as expected, to 0.1 percent in November
from 0.2 percent in October was largely overlooked.
 On the mergers and acquisition front, IBM Corp IBM.N said
it received Canadian government approval of its acquisition of
Ottawa-based software maker Cognos Inc. CSN.TO.
 "That could be an interesting Canadian dollar story in the
next 24 hours as the market digests it and tries to interpret
what it would mean for currency markets overall," said Sutton.
 Cognos shareholders approved IBM's $5 billion takeover
offer earlier in the month.
 Bond prices rallied early in the session on U.S. economic
concerns, but then gave up most of their gains to finish nearly
 "The selloff that occurred later in the session was
basically just movement alongside (U.S.) Treasuries, given the
fact that bond insurers look to be a little bit more stable
than previously expected," said Max Clarke, economist at
IDEAglobal in New York.
 Leading U.S. bond insurer MBIA Inc MBI.N said it had
enough cash to guarantee payments on corporate and municipal
bonds and that it would be able to maintain its triple-A
 Speculation over possible downgrades to the credit ratings
of U.S. bond insurers has battered equities markets in recent
 The key piece of data scheduled for Friday will be the U.S.
January jobs report, which could give some insight into the
severity of the U.S. economic downturn, said Clarke.
 The two-year bond dipped 2 Canadian cents to C$101.87 to
yield 3.180 percent. The 10-year bond rose 2 Canadian cents to
C$100.94 to yield 3.878 percent.
 The yield spread between the two- and 10-year bond was 69.8
basis points, down from 70.5 points at the previous close.
 The 30-year bond rose 16 Canadian cents to C$113.79 to
yield 4.179 percent. In the United States, the 30-year Treasury
yielded 4.324 percent.
 The three-month when-issued T-bill yielded 3.39 percent,
unchanged from the previous close.