February 4, 2008 / 2:38 PM / 11 years ago

Dollar slides on oil, bonds dip

TORONTO (Reuters) - The commodity-based Canadian dollar slid against the U.S. dollar on Monday as crude oil prices were hit by fears that a global economic downturn could crimp energy demand.

Domestic bond prices, lacking any Canadian data releases to influence direction, eased slightly as investors took some profits.

At 9:12 a.m. EST, the Canadian currency was at US$1.0040, valuing a U.S. dollar at 99.60 Canadian cents, down from US$1.0060 to the U.S. dollar, or 99.40 Canadian cents, at Friday’s close.

The main reason for the Canadian dollar’s decline from Friday’s levels is a slip in U.S. crude oil prices which touched briefly below $89 a barrel, said Adam Cole, currency strategist at RBC Capital Markets in London.

Canada is a key oil producer and exporter and much of its currency’s 60 percent run-up since 2002 has been in line with rising crude prices.

Crude prices have fallen more than 10 percent from the record high of $100.09 a barrel, which it hit on January 3, on fears that a global economic downturn could crimp demand.

The price of gold XAU=, another key Canadian export, fell more than 1 percent, to around $901 an ounce, in response to a firmer greenback.

Movement in the Canadian dollar has largely been dictated by what the equities markets have done as of late, as the market looks to them as a barometer on global growth.

But with North American stock futures nearly flat on Monday morning, commodities prices were back in focus.

“It will most likely be pushed and pulled by those two forces until the end of the week, until we get to significant economic news on Friday,” said Cole.

Domestic data on Friday includes jobs numbers and housing starts, both for January.

Leading up to Friday’s headline numbers, building permits for December and the Ivey Purchasing Managers Index for January will both be released on Wednesday.


Bond prices were slightly lower, as a lack of news flow on either side of the border gave investors a chance to pocket some profits after the big run-up in bond prices due to concerns about the prospects for global growth.

The bond market will likely be dictated by moves in equities, as well as any news regarding a bailout for U.S. bond insurers, said Max Clarke, economist at IDEAglobal in New York.

The overnight Canadian Libor rate LIBOR01 was at 4.0667 percent, down from 4.1483 on Friday.

Friday’s CORRA rate CORRA= was 4.0062 percent, down from 4.0100 percent on Thursday. The Bank of Canada publishes the previous day’s rate at around 9 a.m. daily.

The two-year bond dipped 2 Canadian cents to C$101.93 to yield 3.145 percent. The 10-year bond fell 9 Canadian cents to C$101.31 to yield 3.831 percent.

The yield spread between the two- and 10-year bond was 68.6 basis points, up from 68.3 points at the previous close.

The 30-year bond slid 29 Canadian cents to C$114.30 to yield 4.152 percent. In the United States, the 30-year Treasury yielded 4.374 percent.

The three-month when-issued T-bill yielded 3.36 percent, unchanged from the previous close.

Reporting by John McCrank; Editing by Scott Anderson

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