Wednesday October 8, 2008 - 21:03:07 GMT
Share This Story
Reuters - www.reuters.com
Forex Market News - Canada dlr below 90 US cents as more rate cuts seen
* Canadian dollar falls 1.4 percent versus the greenback
* Bank of Canada cuts key rate 50 basis points to 2.5 pct
* Bonds mixed with short end reflecting more rate cuts
By John McCrank and Jennifer Kwan
TORONTO, Oct 8 (Reuters) - The Canadian dollar lost more
ground against the U.S. dollar on Wednesday, falling below 90
U.S. cents for the first time since April 2007, as investors
bet the Bank of Canada would slash interest rates again later
So far this week the currency has dropped 3.7 percent on
top of last week's 4.5 percent slide.
Bond prices were mixed, with the short end reflecting
market expectations of lower central bank rates.
The Canadian dollar ended the North American session at
C$1.1229 to the U.S. dollar, or 89.06 cents, down from C$1.1073
to the U.S. dollar, or 90.31 cents, at Tuesday's close.
The Bank of Canada, along other major central banks around
the world, cut its key lending rate on Wednesday in an attempt
to help shore up investor confidence and get credit flowing.
The surprise rate cut, which brings the bank's key rate
down by 50 basis points to 2.50 percent, comes ahead of its
scheduled interest rate announcement on Oct. 21. See
"The perception in the market is that the Bank of Canada
has some more rate cuts to go," said Michael Gregory, senior
economist at BMO Capital Markets, noting that could lead to
more Canadian dollar weakness.
After the coordinated rate cuts, Thomson Reuters data
showed the market pricing in a 71 percent probability of a 25
basis point cut to the Bank of Canada's overnight rate later in
the month, and a 29 percent chance of a 50 basis point cut.
The outlook for the U.S. economy, which the International
Monetary Fund said is on the brink of recession, added to the
downward pressure on Canada's currency.
"The U.S. is in dire shape and that is going to hurt
Canada," he added.
The U.S. economy takes in over three-quarters of Canadian
But the financial turmoil is not confined to North America,
and with global growth receding, so too is demand for
commodities, which is yet another blow to the prospects of the
Oil and other natural resources make up around half of
BOND PRICES MIXED
Bond prices were mixed, with the short end higher,
reflecting expectations of more Bank of Canada easing, and the
long end following the U.S. market lower on rising U.S. debt
"Initially, with the equities moving lower you had a flight
to safety in the fixed-income markets but then the market
started to reflect concern about potential increases in
government debt, and that then resulted in yields being bid up
in U.S. markets," said Paul Ferley, assistant chief economist,
Royal Bank of Canada.
"Those trends have tended to spill over to Canadian
Bond yields and prices move in opposite directions.
The safe-haven bid that has been a boon to bond markets in
recent weeks is likely to continue over the next few months,
said BMO's Gregory.
"At the margin, this (coordinated central bank action) will
help, but whether this is a panacea, no way. No way," he said.
"From an economic standpoint, or a volatility standpoint,
there's probably more of a rough ride ahead before things start
The yield on the two-year bond, with most closely reflects
market expectations of future interest rate levels, earlier
touched its lowest point in decades, below 2.1 percent.
The two-year bond ended up 21 Canadian cents to C$101.20 to
yield 2.173 percent. The 10-year bond slipped 63 Canadian cents
to C$105.35 to yield 3.587 percent.
The yield spread between the two-year and the 10-year bond
rose to 133 basis points from 116 basis points at the previous
The 30-year bond dropped C$1.25 to C$114.35 to yield 4.139
percent. In the United States, the 30-year Treasury yielded
The three-month when-issued T-bill yielded 1.55 percent, up
from 1.45 percent at previous close.
(Editing by Peter Galloway)
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."