September 3, 2008 / 12:22 PM / 11 years ago

Canada dollar hits lowest level since August 2007

 * Oil prices blamed for latest slide in Canadian dollar
 * Bank of Canada interest rate announcement in focus
 * Bond prices extend gains from previous session
 By Frank Pingue
 TORONTO, Sept 3 (Reuters) - The Canadian dollar dropped to
its lowest level in more than a year versus a stronger U.S.
dollar on Wednesday given another slide in oil prices and ahead
of the Bank of Canada's interest rate announcement.
 Domestic bond prices added to gains made early in the week
as dealers awaited the statement that will accompany the rate
announcement for possible clues as to where rates are headed.
 At 8:05 a.m. (1205 GMT), the Canadian unit was at C$1.0767
to the U.S. dollar, or 92.88 U.S. cents, down from C$1.0686 to
the U.S. dollar, or 93.58 U.S. cents, at Tuesday's close.
 Earlier, the currency had fallen to as low as C$1.0777 to
the U.S. dollar, or 92.79 U.S. cents, the second straight day
it has touched its lowest level since mid-August 2007.
 The slide in the Canadian dollar was pegged to a drop in
oil prices below $109 a barrel, which is a negative for the
domestic currency since Canada is a key oil exporter.
 "The driver of the move is oil prices which leaves Canada
exposed for its own reasons really," said Adam Cole, global
head of FX strategy at RBC Capital Markets in London.
 "But all of that is happening ahead of the Bank of Canada,
which could potentially send us flying in either direction
higher or lower once we get the statement more so than the
decision itself."
 The domestic currency is expected to stick in a tight range
until the key 9:00 a.m. announcement from the Bank of Canada
which will be accompanied by a statement that may offer clues
as to where rates are headed.
 Most Canadian primary securities dealers do not expect the
Bank of Canada to alter its key overnight rate on Sept. 3, but
most feel the next move it does make will likely be a cut and
the timing of that move could be suggested in the statement.
 Canadian bond prices were up across the curve given the
combination of a lower Canadian dollar, follow through from the
slide in equities on Tuesday and the slim possibility of a Bank
of Canada rate cut.
 Most dealers expect the Bank of Canada to leave its key
interest rate steady at 3 percent through the end of the year,
but the central bank has surprised the market in the past and
could always do so again.
 "Even though the wide majority of analysts and economists
expect the Bank of Canada to leave rates unchanged, there is
still some lingering expectations that the bank might just cut
rates," said Carlos Leitao, chief economist at Laurentian Bank
of Canada in Montreal.
 Bond prices rallied in the previous session given a slide
of more than 470 points on the Toronto Stock Exchange's main
index, which was weighed down by retreating energy shares.
 The two-year bond was up 3 Canadian cents at C$100.22 to
yield 2.648 percent, while the 10-year was up 5 Canadian cents
at C$106.30 to yield 3.480 percent.
 The yield spread between the two-year and 10-year bond was
85.9 basis points, unchanged from the previous close.
 The 30-year bond increased 10 Canadian cents to C$117.25
for a yield of 3.986 percent. In the United States, the 30-year
treasury yielded 4.343 percent.
 The three-month when-issued T-bill yielded 2.43 percent,
unchanged from the previous close.
 (Editing by Scott Anderson)

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