Forex Market News - Canadian dollar tumbles on oil, Dodge's comments
Mon Oct 22, 2007 5:10pm EDT
By Frank Pingue
TORONTO, Oct 22 (Reuters) - The high-flying Canadian dollar
fell hard on Monday, losing 1.5 percent to the U.S. greenback,
due to a combination of lower oil prices and comments from Bank
of Canada Governor David Dodge on the currency's recent
Domestic bond prices, with no Canadian economic data to
influence a move, followed the tone set in the U.S. treasury
market and finished lower across the curve.
The Canadian dollar closed at 98.04 Canadian cents to the
U.S. dollar, or US$1.0199, down from Friday's close of 96.57
Canadian cents to the U.S. dollar, or US$1.0355.
The drop in the Canadian dollar, which had gained about 10
percent in the two months heading into the session, followed
comments on Sunday by Dodge who said the currency's rise was
The remarks followed last week's Bank of Canada's economic
outlook, which said the currency's rise could be explained by
strong global demand for Canadian products.
"It could be just a shot across the bow, maybe some verbal
intervention ... and it could just be prompting traders who
have been holding these (Canadian dollar) long positions to
unwind some of their gains," said Gareth Sylvester, senior
currency strategist at HFIX Plc in San Francisco.
"So it's a contributing factor, as are lower oil prices,
but the primary driver today and the theme of the marketplace
has ben the downturn in global equity markets and high risk
Increased risk aversion leads to the unwinding of carry
trades, where investors borrow a low yielding currency to buy a
higher yielding ones like the New Zealand and Australian
dollars, which, like Canada, are commodity-linked currencies.
A good chunk of the currency's recent rise has been
correlated to the rise in U.S. oil prices, which hit a record
above $90 a barrel last week. So a fall in oil prices back
toward $87 a barrel weighed on the domestic currency.
The Canadian dollar hit parity with the greenback last
month for the first time since 1976 and, until the latest
session, its has shown few signs of backing off.
BONDS END LOWER
Canadian bond prices finished down, matching the drop in
U.S. treasuries, as North American equity markets found their
footing after a lower finish last week and investors had less
appetite for the security of government debt.
Domestic bonds could get some homegrown direction on
Tuesday as the release of retail sales data for August could
set the tone in a quiet week for Canadian economic news.
But moves could be limited ahead of key U.S. housing data
on Wednesday and Thursday, which could affect the U.S. Federal
Reserve's decision on interest rates later this month.
The two-year bond fell 9 Canadian cents to C$100.13 to
yield 4.182 percent, while the 10-year bond dropped 6 Canadian
cents to C$97.57 to yield 4.310 percent.
The yield spread between the two-year and 10-year bond
moved to 12.8 basis points from 15.9 at the previous close.
The 30-year bond fell 3 Canadian cents to C$110.48 to yield
4.365 percent. In the United States, the 30-year Treasury
yielded 4.688 percent.
The three-month when-issued T-bill yielded 3.93 percent,
down from 3.97 percent at the previous close.
Reuters journalists are subject to the Reuters Editorial Handbook which requires fair presentation and disclosure of relevant interests.
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