Monday January 21, 2008 - 21:31:17 GMT
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Reuters - www.reuters.com
Forex Market News - Loonie near 4-month low on equity selloff
By Frank Pingue
TORONTO (Reuters) - The Canadian dollar fell to a 4-month
low versus the U.S. dollar on Monday as a selloff in global
stocks and lower oil prices shook the domestic currency ahead
of a widely expected Bank of Canada rate cut on Tuesday.
Domestic bond prices were higher across the curve as the
latest piece of Canadian economic data missed expectations and
nagging concerns about the U.S. economy extended the recent
appetite for safe-haven bonds.
At 9:15 a.m., the Canadian dollar was at 96.87 U.S. cents,
valuing a U.S. dollar at C$1.0323, down from 97.33 U.S. cents,
or C$1.0274, at Friday's close.
Earlier, the Canadian dollar fell to 96.77 U.S. cents, or
C$1.0334, its lowest level since Set. 14, as the combination of
risk aversion, lower commodity prices and falling equity
markets took its toll on the domestic currency.
Investors tend to unwind carry trades in periods of risk
aversion, and the Canadian dollar, which like carry trade
currencies is largely commodity-driven, is often pulled along.
"With the risk aversion we've also seen commodities come
under pressure and that's hot it filtered through to the
Canadian dollar," said Matthew Strauss, senior currency
strategist at RBC Capital Markets. "It's not a great surprise
that the Canadian dollar again today is under pressure with the
equity markets down globally."
Since a 17.5 percent rise versus the greenback in 2007, the
Canadian dollar has fallen 4 percent due largely to concerns
about what impact a global slowdown could have on Canada given
the nature of its exports.
A weak string of domestic data and lower commodity prices
have also played a key role in shaking the Canadian dollar,
which has fallen for three straight weeks.
Further moves for the currency on Monday could be limited
ahead the Bank of Canada's monetary policy announcement on
January 22, which primary dealers unanimously expect will be a
25 basis point cut in the overnight rate to 4.00 percent.
"I think the major direction will come from the Bank of
Canada," said Strauss. "It's widely expected they will cut 25
basis points so eyes will be on the statement afterward."
Canadian bond prices were all higher as dealers moved into
secure assets like government debt given expectations for the
Canadian economy to slow in 2008 because of a U.S. downturn.
And while the market has all but priced in a Bank of Canada
rate cut on Tuesday, the accompanying statement is expected to
offer a dovish tone and that is also supporting bond prices.
"There is some risk of a larger move but certainly the bank
will maintain an easing bias and keep the door open for further
rate cuts in March and possibly beyond," said Sal Guatieri,
senior economist at BMO Capital Markets.
Earlier, Canadian data showed wholesale trade rose 0.3
percent in November, missing the median forecast of analysts in
a Reuters poll looking for a 0.5 percent gain.
Other key reports due this week include the Bank of Canada
Monetary Policy Report Update on Thursday and the CPI report on
The overnight Canadian Libor rate LIBOR01 was at 4.2817,
percent, down from 4.3450 percent on Friday.
Friday's CORRA rate was 4.2582 percent, up from, 4.2486 on
Thursday. The Bank of Canada publishes the previous day's rate
at around 9:00 a.m. daily.
The two-year bond was up 15 Canadian cents at C$102.00 to
yield 3.129 percent. The 10-year bond rose 28 Canadian cents to
C$101.97 to yield 3.748 percent.
The yield spread between the two-year and 10-year bond was
61.9 basis points, up from 57.4 basis points at the previous
The 30-year bond increased 36 Canadian cents to C$116.20 to
yield 4.051 percent. In the United States, the 30-year Treasury
yielded 4.284 percent.
The three-month when-issued T-bill yielded 3.55 percent,
down from 3.61 percent at the previous close.
(Editing by Renato Andrade)
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