TORONTO (Reuters) - The Canadian dollar fell against the U.S. dollar on Wednesday along with other commodity-linked currencies as fears that a slowdown in global growth could impact commodity prices.
Canadian bond prices, with no domestic data to influence direction, rose along with the larger U.S. market on credit and financial market concerns.
At 9:32 a.m. the Canadian dollar was at C$1.0182 to the U.S. dollar, or 98.21 U.S. cents, down from C$1.0133 to the U.S. dollar, or 98.69 U.S. cents, at Tuesday’s close.
The currency tilted lower during the overseas session, as investors digested a downgrade to the International Monetary Fund’s global growth forecast and Tuesday’s dovish FOMC minutes.
An IMF report on Wednesday said the U.S. would tip into recession and world growth will fall to 3 percent or less.
The report comes after FOMC minutes released Tuesday showed the Fed is still worried that the credit crunch and the U.S. housing rut could plunge Canada’s biggest trading partner into a period of prolonged weakness.
“The FOMC minutes were very much highlighting that the Fed does think that the U.S. is entering recession or is in recession and that growth will be negative,” said Camilla Sutton, currency strategist at Scotia Capital.
Foreign exchange traders lightened up on commodity-linked currencies in response to the reports, as lower growth may lead to softer commodity prices. The Canadian, Australian and New Zealand dollars all lost around half a percent in early trading.
Global growth will be the paramount topic at this weekend’s G7 summit in Washington as central banks seek common ground on how to alleviate the credit crisis.
Canadian bond prices rose along with the larger U.S. market as equity markets had looked set for a weaker opening.
Reports said Citigroup Inc C.N, America’s biggest bank, was unloading about $12 billion of leveraged loans and bonds to reduce its holdings of troubled corporate debt.
That initially weighed on equity markets, setting the tone in the bond market, said Mark Chandler, fixed income strategist at RBC Capital Markets.
The overnight Canadian Libor rate LIBOR01 was 3.4000 percent, down from 3.4250 percent on Tuesday.
Tuesday’s CORRA rate CORRA= was 3.4542 percent, down from 3.4992 percent on Monday. The Bank of Canada publishes the previous day’s rate around 9 a.m. daily.
The two-year bond rose 8 Canadian cents to C$102.10 to yield 2.732 percent. The 10-year bond climbed 15 Canadian cents to C$103.12 to yield 3.596 percent.
The yield spread between the two- and 10-year bonds was 86.4 basis points, up from 84.3 basis points at the previous close.
The 30-year bond jumped 27 Canadian cents to C$115.72 to yield 4.073 percent. In the United States, the 30-year treasury yielded 4.370 percent.
The three-month when-issued T-bill yielded 2.31 percent, up from 2.19 percent at the previous close.
Reporting by John McCrank; Editing by Scott Anderson