Wednesday March 26, 2008 - 21:13:32 GMT
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Reuters - www.reuters.com
Forex Market News - Canadian dollar slips on U.S. economic outlook
By John McCrank
TORONTO, March 26 (Reuters) - The Canadian dollar slid
lower against the U.S. dollar as investors were loath to bet on
the currency, given Canada's heavy dependency on the waning
Domestic bond prices, with no Canadian economic data to
influence direction, ended mostly higher along with the larger
The Canadian currency closed at C$1.0188 to the U.S.
dollar, or 98.15 U.S. cents, down from C$1.0173 to the U.S.
dollar, or 98.30 U.S. cents, at Tuesday's close.
Early on in the session, rising oil prices helped the
currency climb to C$1.0095 to the U.S. dollar, or 99.05 U.S.
cents, which marked its highest level in a week.
Canada is a major oil producer and exporter, and rising oil
prices have been a major factor in the currency's 60 percent
rise since 2002.
But the currency slipped from its intraday high, even as
oil prices pushed higher, due to concerns that the growing
economic softness in the United States would weaken global
growth and cut demand for commodities.
"The U.S. data has certainly deteriorated over the last
week and that is weighing on the NAFTA bloc, as well as the
procyclical currencies," said Camilla Sutton, currency
strategist at Scotia Capital.
The worst performers among major currencies were the
Canadian dollar and the Mexican peso, along with the
commodity-linked New Zealand dollar.
A report showing U.S. durable goods orders fell in February
was the latest bad news from south of the border. The data,
which is a key gauge of companies' appetites for investment,
came on the heels of U.S. reports that showed dwindling
consumer confidence and eroding home prices.
The United States is by far Canada's biggest trading
partner and while many areas of the economy are decidedly more
robust than the corresponding U.S. sectors, a slowdown in the
world's largest economy will hit Canada, Sutton said.
"Certainly our growth will be weighed down because of
what's happening in the U.S., along with the strong Canadian
dollar," he said.
Over the medium term, however, Canada is seen weathering
the storm, partly because of its relatively low inflation rate,
which leaves the Bank of Canada room to cut interest rates to
stimulate the economy.
In a recent Reuters poll, the majority of Canada's primary
securities dealers said they expect the central bank to cut
interest rates by 50 basis points to 3 percent when it meets in
Canadian bond prices were mostly higher, in line with the
larger U.S. market as there was no domestic data to influence
"The risks of a recession in the U.S. are much higher
following today's durable goods orders numbers," said Carlos
Leitao, chief economist at Laurentian Bank of Canada.
Those increased risks fed the demand for safe-haven
government debt, he said.
Canada's economic calendar is bare until the January gross
domestic product report, due on Monday. Market focus next week
will be on the March jobs report due April 4.
The two-year bond was up 13 Canadian cents at C$102.65 to
yield 2.621 percent. The 10-year bond increased 11 Canadian
cents to C$104.16 to yield 3.465 percent.
The yield spread between the two- and 10-year bonds was
84.4 basis points, up from 77.5 points at the previous close.
The 30-year bond dropped 34 Canadian cents to C$117.82 to
yield 3.963 percent. In the United States, the 30-year treasury
yielded 4.321 percent.
The three-month when-issued T-bill yielded 1.77 percent,
down from 1.93 percent at the previous close.
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