Thursday October 2, 2008 - 20:58:26 GMT
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Reuters - www.reuters.com
Forex Market News - Canada dollar at 3-week low as credit crunch bites
* Canadian dollar down 4.4 percent so far this week
* Bonds gain on safe-haven bid as stocks dive
* Focus on U.S. House vote on bailout, U.S. jobs data
By John McCrank
TORONTO, Oct 2 (Reuters) - The Canadian dollar tumbled 1.7
percent against the U.S. dollar on Thursday as tight credit
markets put a premium on the greenback and commodity prices
fell on concerns that slowing global growth would undercut
Bond prices surged as worried investors continued to seek
the safety of government debt amid a weakening global economy
and falling stock markets.
The Canadian dollar ended the North American session at
C$1.0799 to the U.S. dollar, or 92.60 cents, down from C$1.0620
to the U.S. dollar, or 94.16 U.S. cents, at Wednesday's close.
The currency is down 4.4 percent so far this week and is at
its weakest point since Sept. 11.
"We seem to be in an environment where there is shortage of
(U.S.) dollars, despite the fact that the central banks have
been throwing gobs of liquidity at the markets," said Shaun
Osborne, chief currency strategist at TD Securities.
The lack of resolution of the debate over the proposed $700
billion bailout plan for the U.S. financial sector has caused a
tightening in credit markets as financial institutions are
reluctant to lend to each other, he said.
"It seems possible to me that people are selling foreign
exchange positions, bringing home assets and trying to dress
up their balance sheets, because it's very difficult to secure
their regular funding."
Weakening commodity prices -- oil CLc1 was down nearly $5
a barrel and gold <XAU=> was off nearly $35 an ounce -- added
to the Canadian dollar's decline. Around half of Canadian
exports are made up of natural resources.
BOND PRICES RALLY
Canadian bond prices rallied as investors retreated from
plunging equity markets, which were beaten up by concerns about
whether the U.S. House will pass the revived bailout package
for the financial industry.
"In recent weeks, the Treasury market, and to a lesser
extent the Canadian bond market, have been whipsawed in twists
and turns by the fiscal costs of the bailout on the one side,
and concerns about a much deeper downturn on the U.S. on the
other side," said Doug Porter, deputy chief economist at BMO
Capital Markets. "Today it's obviously the concerns about the
The Toronto Stock Exchange's main index sank 6.95 percent
and the Dow Jones industrial average fell 3.22 percent on
Thursday even though the U.S. Senate passed the revised bailout
package by a big margin on Wednesday.
The U.S. House of Representatives is expected to vote on
the new bill on Friday after its surprise rejection of the
first version of the plan earlier this week, which sent stocks
Poor car sales, weak manufacturing numbers and
disappointing jobless claims in the United States have
heightened concern that there will be steep losses in Friday's
U.S. jobs figures for September.
The two-year bond rose 22 Canadian cents to C$100.31 to
yield 2.601 percent. The 10-year bond gained 47 Canadian cents
to C$104.75 to yield 3.660 percent.
The yield spread between the two-year and the 10-year bond
was 105 basis points, unchanged from the previous close.
The 30-year bond added 55 Canadian cents to C$114.05 for a
yield of 4.156 percent. In the United States, the 30-year
Treasury yielded 4.156 percent.
The three-month when-issued T-bill yielded 1.65 percent,
down from 1.85 percent at the previous close.
(Reporting by John McCrank; Editing by Peter Galloway)
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