Monday September 15, 2008 - 21:05:19 GMT
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Reuters - www.reuters.com
Forex Market News - Canadian dollar sags on market concerns, lower oil
* Canadian dollar down 0.6 percent versus greenback
* Commodity prices drop as global demand seen waning
* Bonds rally sharply on flight to safety
By John McCrank
TORONTO, Sept 15 (Reuters) - The Canadian dollar slid 0.6
percent against the U.S. dollar on Monday after Lehman Brothers
Holdings Inc (LEH.N: Quote, Profile, Research, Stock Buzz) filed for bankruptcy protection, giving a
bid to the greenback, and as commodity prices weakened.
Canadian bond prices saw big gains along with the larger
U.S. market as investors moved out of battered equities and
into more secure government debt.
The Canadian dollar ended the North American session at
C$1.0679 to the U.S. dollar, or 93.64 U.S. cents, down from
C$1.0611 to the U.S. dollar, or 94.24 U.S. cents, at Friday's
The currency hit a low point of C$1.0755, or 92.98 U.S.
cents early in the session, but then reclaimed some lost
"I would have thought that we would have had a test above
C$1.08," said David Bradley, director of foreign exchange at
"People are just stepping back and looking at exposures
other than foreign exchange and trying to figure out what other
implications they're going to have with this Lehman
bankruptcy," he said.
Lehman Brothers filed for bankruptcy protection early on
Monday after failing to finance risky real estate bets, making
it the biggest casualty so far of the global credit crisis. See
Adding to the worries, Merrill Lynch (MER.N: Quote, Profile,
Research, Stock Buzz) agreed to be taken over by Bank of America
(BAC.N: Quote, Profile, Research, Stock Buzz), and the future of
insurer American International Group (AIG.N: Quote, Profile,
Research, Stock Buzz) was thrown into doubt.
The U.S. Federal Reserve tossed a lifeline to the financial
sector, broadening the collateral it would accept from
investment banks for direct loans.
The sharp rise in risk aversion put a bid to the greenback
over fears that, as nervous investors repatriate funds, it will
become a lot more difficult to obtain financing in U.S.
dollars, especially with credit so hard to come by.
Commodity prices were also affected by the market turmoil,
which was seen dampening demand. Canada is a major exporter of
many key commodities, including oil and gold, and its currency
is often influenced by moves in their prices.
The price of U.S. crude oil CLc1 fell as much as $7 to
$94.13 a barrel. There was no visible damage to U.S. refineries
after Hurricane Ike, adding more softness to crude prices.
Canadian bond prices rallied along with U.S. treasuries as
investors fled equities for the more secure bond market.
"It's a fright to quality -- not flight, but fright,"
Sheldon Dong, fixed income analyst at TD Waterhouse Private
The odds of a Fed interest rate cut when it meets on
Tuesday were boosted by the financial uncertainty, adding to
the bid in treasuries.
"Realistically, with fed funds at 2 percent, a rate cut at
this point is more symbolic than anything else," said Dong.
"But I do think the market is looking for some sort of
symbol and I think they'd be quite disappointed if the Fed
doesn't do a 25 basis point rate cut.
A Bank of Canada spokesman said that although credit
conditions in Canada remain difficult, they are better in many
respects than those in major markets. See [ID:nOTW000134]
The central bank injected a total of C$2.305 billion into
markets by midday to improve liquidity, its biggest such
intervention since February 2000.
The two-year bond rose 66 Canadian cents to C$100.59 to
yield 2.473 percent, while the 10-year added C$1.49 to C$106.77
to yield 3.423 percent.
The yield spread between the two-year and 10-year bond was
101.00 basis points, up from 82.0 basis points at the previous
The 30-year bond gained C$2.10 to C$118.00 for a yield of
3.946 percent. In the United States, the 30-year treasury
yielded 4.079 percent.
The three-month when-issued T-bill yielded 2.25 percent,
down from 2.39 percent at the previous close.
(Reporting by John McCrank; editing by Rob Wilson)
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