Thursday July 17, 2008 - 21:06:14 GMT
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Reuters - www.reuters.com
Forex Market News - Canadian dollar falls as lower oil helps greenback
* Canadian dollar sinks 0.5 percent as oil price drops
* BoC Monetary Policy Report Update sees inflation rising
* Bond prices track U.S. market lower
By John McCrank
TORONTO, July 17 (Reuters) - The Canadian dollar fell to
its lowest close this week against the U.S. dollar on Thursday,
as oil prices declined, giving a boost to the greenback.
Bond prices fell along with the larger U.S. market in
response to some solid U.S. data and a rally in equities.
The Canadian dollar closed at C$1.0068 to the U.S. dollar,
or 99.32 U.S. cents, down from C$1.0022 to the U.S. dollar, or
99.78 U.S. cents, at Wednesday's close.
The currency hung around parity with the greenback for much
of the day, rising above the level several times, but then
backed off after a sharp drop in oil prices.
The price of U.S. crude oil CLc1 fell $5.31, or 3.95
percent, to $129.29 a barrel on concerns over waning U.S.
demand and easing geopolitical tensions between Iran and the
West. See [ID:nSP236258]
Canada is a major oil producer, and much of the Canadian
dollar's 60 percent climb between 2002 and 2008 was linked to
rising oil prices, although that link has diminished recently,
as high oil prices are now viewed as a threat to global
In the United States, high oil prices have been blamed for
both weaker growth and higher inflation, so it was not
surprising to see the U.S. dollar gain some steam as oil prices
fell, said said Steve Butler, director of foreign exchange at
"It certainly feels like, as oil is coming off, it's taking
the heat off of the U.S. in general," he said.
Higher oil and other commodity prices also featured largely
in the Bank of Canada's Monetary Policy Report Update on
Thursday. See [ID:nN17317608]
The central bank said soaring oil prices will temporarily
push Canada's headline inflation to an above-target peak of 4.3
percent early next year. It added that core inflation, which
strips out volatile prices like energy and food, would stay
within the the bank's 1 percent to 3 percent target range.
The bank also said the commodity boom is more of a positive
than a negative for Canada's economy.
BOND PRICES SLIDE
Bond prices tracked the U.S. market lower after stronger
than expected data on the U.S. housing and job markets, taking
some of the safe-haven bid out of government debt.
"Also, the (bond) market was taking its cue from the equity
markets, and in particular, the relief about some of the
financial earnings," said Mark Chandler, fixed income
strategist at RBC Capital Markets.
Earnings from the third-largest U.S. bank, JP Morgan
(JPM.N: Quote, Profile, Research, Stock Buzz), beat market expectations and helped extend a rally in
financial stocks sparked by strong results from Wells Fargo &
Co (WFC.N: Quote, Profile, Research, Stock Buzz) on Wednesday. That boosted the Dow Jones Industrial
Average, while the Toronto Stock Exchange closed as softer oil
prices dragged down energy issues.
On the domestic data front, Statistics Canada said foreign
purchases of Canadian securities rose in May to C$10.72
billion, the highest level since the C$11.75 billion recorded
in November 2006, as nonresidents invested heavily in bonds.
Canadian investors bought C$6.09 billion worth of
securities abroad, focusing on non-U.S. stocks.
The two-year bond fell 13 Canadian cents to C$101.10 to
yield 3.135 percent. The 10-year bond slid 47 Canadian cents to
C$103.73 to yield 3.792 percent.
The yield spread between the two-year and 10-year bond was
65.7 basis points, down from 66.2 basis points.
The 30-year bond lost 65 Canadian cents to C$114.10 for a
yield of 4.156 percent. In the United States, the 30-year
treasury yielded 4.634 percent.
The three-month when-issued T-bill yielded 2.37 percent, up
from 2.28 percent at the previous close.
(Editing by Rob Wilson)
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