April 16, 2010 / 9:15 PM / in 10 years

CANADA FX DEBT-C$ falls as Goldman charges scare off risk

 * Ends at C$1.0132 to the US$, or 98.70 U.S. cents
 * Touches low of C$1.0165, or 98.38 U.S. cents
 * Markets rattled by Goldman Sachs fraud charges
 * Investors await Bank of Canada for direction
 * Bond prices move higher across curve  (Updates to close, adds quote)
 By Jennifer Kwan
 TORONTO, April 16 (Reuters) - The Canadian dollar closed a cent lower against the U.S. currency on Friday as investors fled risk amid a global stocks rout after regulators charged U.S. investment bank Goldman Sachs (GS.N) with fraud.
 The currency fell as low as C$1.0165 to the U.S. dollar, or 98.38 U.S. cents, as investors scampered to traditional safe-haven assets on news that the U.S. Securities and Exchange Commission charged has Goldman Sachs with fraud in the structuring and marketing of a debt product tied to subprime mortgages. [ID:nN16121493]
 “It’s the general market market meltdown that happened after the Goldman Sachs news hit. That seems to be the prime driver that has pushed equities lower, and commodities have dropped with it,” said Sacha Tihanyi, currency Strategist at Scotia Capital.
 “Nobody knows if this is the start of something or what could happen. Markets don’t like uncertainty. That’s a fairly big dose of it,” he added.
 The Canadian dollar CAD=D4 finished at C$1.0132 to the U.S. dollar, or 98.70 U.S. cents, down from Thursday’s finish of C$1.0033 to the U.S. dollar, or 99.67 U.S. cents.
 Also weighing on market sentiment were disappointing earnings from several big names including Google Inc (GOOG.O), while the euro dropped on worries about Greece’s debt crisis. [MKTS/GLOB] The U.S. dollar and yen advanced strongly on Friday in the flight to safety. [FRX/]
 The Canadian currency was also hurt by data that showed domestic manufacturing sales rose less than expected in February, up 0.1 percent from January. Analysts surveyed by Reuters had forecast a 0.8 percent increase. [ID:nN16446129]
 The stronger dollar and slide in equities om the Goldman news pushed down the price of oil, a major Canadian export, while gold prices were also weaker. [O/R] [GOL/]
 Before the Goldman news, market watchers had expected the Canadian dollar to drift higher ahead of the Bank of Canada’s policy announcement next week. The market is looking for clues from the bank on the timing of an increase in its key interest rate from the current low 0.25 percent level.
 Most of Canada’s primary securities dealers predicted in a Reuters poll on Thursday that the bank would wait until July to raise interest rates as the high-flying Canadian dollar gives it some breathing room by providing a tightening mechanism for the economy.  [ID:nN15207373]
 The central bank has pledged to keep rates at the current low level until the end of June, so long as inflation remains in check. Higher interest rates normally draw investment and push up a currency.
 “If they drop the conditional commitment, which we don’t expect, that would be a pretty clear signal that June’s in the crosshairs,” said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets. [ID:nN15256700]
 Canadian bond prices rose across the curve as money drained out of equity markets and flowed into safe-haven bonds. [US/] “It’s a very correlated move,” said Scotia Capital’s Tihanyi.
 The two-year government bond CA2YT=RR climbed 14 Canadian cents to C$99.34 to yield 1.861 percent, while the 10-year bond CA10YT=RR rose 33 Canadian cents to C$100.56 to yield 3.677 percent.
 Canadian government bonds mostly underperformed U.S. issues, with the 10-year yield 9.3 basis points below its U.S. counterpart, compared with around 12 basis points the previous session.  (Additional reporting by Ka Yan Ng; editing by Peter Galloway)                                                      

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