September 16, 2008 / 2:13 PM / 12 years ago

Canadian dollar slips with commodity prices

 * Canadian dollar slips 0.4 percent against greenback
 * Bonds rise as investors look for safe havens
 * July manufacturing sales higher than expected
 By John McCrank
 TORONTO, Sept 16 (Reuters) - The Canadian dollar fell
against the U.S. dollar on Tuesday as commodity prices tilted
lower amid the turmoil in financial markets.
 Canadian bond prices rose in a safe haven bid.
 At 9:42 a.m. (1342 GMT), the Canadian dollar was at
C$1.0725 to the U.S. dollar, or 93.24 U.S. cents, down from
C$1.0679 to the U.S. dollar, or 93.64 U.S. cents, at Monday's
 Commodity prices weakened due to the uncertainty in the
global financial system sparked by Lehman Brothers' bankruptcy
protection filing on Monday, and some investors worry the
turbulence will undercut demand.
 Canada is a major exporter of many key commodities,
including oil and gold, and its currency is often affected by
movements in their prices.
 The price of U.S. crude oil CLc1 tumbled more than 4
percent to  under $92, well off its high of over $147 a barrel
in mid July. See [ID:nSP317159]
 Despite the selloff in commodities, the Canadian dollar
weakened only slightly against the greenback and it made gains
against many other major currencies.
 Part of the reason, said Shane Enright, currency strategist
at CIBC World Markets, is that the market has started to price
in interest rate cuts in the United States to help offset the
effects of the credit crunch and the weakening economy.
 In Canada, rates are expected to hold steady for the
foreseeable future.
 "You've seen interest rate differentials, if you get six
months out, improve in Canada's favor versus the U.S., and I
think that's been a helpful development," Enright said.
 The U.S. Federal Reserve makes a rate decision on Tuesday
afternoon, and many in the market are expecting a
25-basis-point rate cut to lower the fed funds rate to 1.75
 Canadian bonds rallied on a safe haven bid for a second
straight day, but less so than the U.S. market.
 "The fact that Canada's bond market has underperformed
Treasuries reflects a little firmer environment in Canada than
in the U.S.," said Sal Guatieri, senior economist at BMO
Capital Markets.
 Figures on Tuesday showed Canadian manufacturing sales rose
more than twice as fast as expected in July, and this helped
hold the rally in check. Shipments were up 2.7 percent from
June due to broad-based strength led by the durable goods
industries. See [ID:nN16300565]
 The two-year bond rose 7 Canadian cents to C$100.73 to
yield 2.407 percent, while the 10-year added 2 Canadian cents
to C$107.17 to yield 3.374 percent.
 The yield spread between the two-year and 10-year bond was
108 basis points, up from 101 basis points at the previous
 The 30-year bond gained 5 Canadian cents to C$118.75 for a
yield of 3.907 percent. In the United States, the 30-year
treasury yielded 4.079 percent.
 The three-month when-issued T-bill yielded 2.27 percent, up
from 2.25 percent at the previous close.
 (Reporting by John McCrank; Editing by Peter Galloway)

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