TORONTO (Reuters) - The Canadian dollar was whacked to its lowest level versus the U.S. dollar in more than three years on Wednesday as softer oil prices and a surge in the greenback combined to knock the currency below 80 U.S. cents.
Bond prices closed higher across the curve as the latest data out of Canada, including the August retail sales report, missed estimates, while the equity market resumed its slide and prompted investors to snap up more secure government debt.
The Canadian dollar closed at C$1.2547 to the U.S. dollar, or 79.70 U.S. cents, down 3 percent from C$1.2137 to the U.S. dollar, or 82.39 U.S. cents, at Tuesday's close.
During the session, the Canadian currency dropped as low as C$1.2600 to the U.S. dollar, or 79.36 U.S. cents, a move blamed largely on a stronger greenback as investors liquidated riskier assets. Lower oil prices also played a role.
"Stand out of the way of this freight train," said Steve Butler, director of foreign exchange at Scotia Capital. "You just cannot call an end to this move at this moment or a bottom for the Canadian dollar."
Butler said the speed and depth of the Canadian dollar's fall surprised him, but that the turbulence in the market has been longer and more severe than anyone had anticipated.
On the heels of its 17.5 percent surge last year, when it rose above the U.S. dollar for the first time in more than 30 years, the Canadian dollar is now down 21 percent this year.
The latest slide in the currency followed Tuesday's Bank of Canada decision to cut its key overnight rate by 25 basis points, slash its projections for economic growth and inflation, and suggest that more rate cuts are on the horizon.
The bulk of the Canadian currency's decline came during the overnight session as concerns that stability would not return any time soon to financial markets convinced investors to shed riskier assets.
"It's just basically been taking part in the activities of the rest of the market and that right now is just massive U.S. dollar repatriation, and the U.S. dollar just reigns supreme against every currency but the Japanese yen," Butler said.
The market will now shift its focus to the Bank of Canada's Monetary Policy Report, due at 10:30 a.m. EDT on Thursday, for details on its views for the economy and inflation.
Canadian bond prices extended gains from the previous session as the steep slide in equity markets, weak data and lingering effects of the Bank of Canada's dovish statement from Tuesday lured investors into more secure assets.
Retail sales in Canada fell 0.3 percent in August, which marked the first drop in six months and was steeper than the 0.2 percent slide that had been expected by market analysts.
Also, Canada's composite leading indicator fell 0.2 percent in September from August. The market had expected no change.
The Toronto Stock Exchange's main index dropped 558 points, or 5.7 percent, as investors continued to unwind gains recorded during Friday's and Monday's sessions.
"I think people were trying to bottom fish on the stocks late last week and thought that might be the entry point and then today said 'whoops, maybe not'," said Sheldon Dong, fixed income analyst at TD Waterhouse Private Investment.
The two-year bond rose 15 Canadian cents to C$101.34 to yield 2.095 percent. The 10-year bond increased 70 Canadian cents to C$105.20 to yield 3.603 percent.
The yield spread between the two-year and the 10-year bond moved to 161 basis points from 154 basis points at the previous close.
The 30-year bond rallied C$1.52 to C$115.12 to yield 4.097 percent. In the United States, the 30-year Treasury yielded 4.062 percent.
Editing by Peter Galloway