Tuesday September 16, 2008 - 21:12:49 GMT
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Reuters - www.reuters.com
Forex Market News - Canada dollar slips on soft commodities, bonds fall
* Canadian dollar slips 0.1 percent against greenback
* Bonds fall in late turnaround
* July manufacturing sales higher than expected
By John McCrank
TORONTO, Sept 16 (Reuters) - The Canadian dollar fell
against the U.S. dollar on Tuesday due to soft commodity
prices, but managed to make up some ground late in the session
as markets cheered a report of a possible bailout for troubled
insurer American International Group (AIG.N: Quote, Profile, Research, Stock Buzz).
Canadian bond prices tumbled lower along with the larger
U.S. market after the U.S. Federal Reserve held interest rates
steady, and the AIG report surfaced.
The Canadian dollar ended the North American session at
C$1.0695 to the U.S. dollar, or 93.50 U.S. cents, down from
C$1.0679 to the U.S. dollar, or 93.64 U.S. cents, at Monday's
The currency hit a weak point of C$1.0750, or 93.02 U.S.
cents, as commodity prices dropped on concerns that the global
credit crunch and recent market turbulence would cut into
Commodities make up about half of Canada's exports, and
movements in the prices of oil, gold, base metals, and natural
gas can influence the direction of Canada's currency.
The latest crisis in the global financial system was
sparked by Lehman Brothers Holdings Inc's (LEH.N: Quote, Profile, Research, Stock Buzz) bankruptcy
protection filing on Monday.
The sale of investment firm Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz)
increased the market concern, and AIG's inability to find cash
heightened it to a fever pitch.
Late in the session, however, a report that U.S.
authorities were considering a loan package for AIG buoyed
"We saw some risk appetite returning," said Matthew
Strauss, senior currency strategist at RBC Capital Markets.
"It filtered through equities, it filtered to the currency
market... and as it filtered through ever so slightly on the
commodity side, it supported the Canadian dollar."
Canadian bonds fell along with the U.S. market, giving back
a big chunk of the gains from Monday's big rally.
"You can attribute that to the Fed pausing... and
simultaneously, these rumors that AIG could be bailed out by
the (U.S.) federal government," said Eric Lascelles, chief
economics and rates strategist at TD Securities.
Many in the market had speculated the Fed would cut
interest rates to soothe the nerves of investors, and the bond
market had started pricing in an easing to reflect those
When the Fed held rates steady, saying that inflation still
had to be taken into consideration, the bond market unwound.
At the same time, stock prices rallied on the AIG report,
undercutting the safe-haven bid that had supported bonds.
On the data front, figures showed Canadian manufacturing
sales rose more than twice as fast as expected in July.
Shipments were up 2.7 percent from June due to broad-based
strength led by the durable goods industries. See
The two-year bond fell 41 Canadian cents to C$100.25 to
yield 2.632 percent, while the 10-year dropped 80 Canadian
cents to C$106.35 to yield 3.472 percent.
The yield spread between the two-year and 10-year bond was
85.8 basis points, down from 101 basis points at the previous
The 30-year bond shed C$1.15 to C$117.55 for a yield of
3.969 percent. In the United States, the 30-year Treasury
yielded 4.127 percent.
The three-month when-issued T-bill yielded 2.15 percent,
down from 2.25 percent at the previous close.
(Editing by Peter Galloway)
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