By Frank Pingue
TORONTO, Nov 15 (Reuters) - The Canadian dollar tumbled
against the U.S. currency on Thursday due as equity markets
skidded again, while weak domestic manufacturing data hinted at
a Bank of Canada rate cut early next year.
Domestic bond prices were comfortably higher, pushing the
yield on the two-year to its lowest in nearly a year, as the
jittery market conditions convinced investors to seek out the
security offered in government debt.
The Canadian dollar closed at US$1.0151, valuing each U.S.
dollar at 98.51 Canadian cents, down from Wednesday's close of
US$1.0348, or 96.64 Canadian cents.
During the session, the Canadian dollar fell to US$1.0138,
its lowest level versus the greenback in five weeks.
Since hitting a modern-day high of US$1.1039 on Nov. 7, the
Canadian currency has been in a steady decline that now has it
threatening to fall back below parity for the first time since
The latest drop in the Canadian currency was triggered by a
fall in global stock markets as investors shied away from risky
assets, which often weighs on commodity-linked currencies like
the Canadian dollar.
Investors have been avoiding risk as financial firms the
world over take writedowns related to the U.S. subprime
mortgage-induced credit crunch.
Also weighing on the Canadian dollar's performance was data
that showed domestic manufacturing shipments in September fell
by a larger amount than analysts had expected.
"Anything that sort of leads to the idea of weakness in
manufacturing, weakness in real trade and then leaning toward a
Bank of Canada rate cut is going to have resonance," said David
Watt, senior currency strategist at RBC Capital Markets.
"I think all the people that were big bulls last week are
getting out now."
The Bank of Canada has left its key overnight rate steady
at 4.50 percent since July. It is not expected to alter rates
when it next sets policy on Dec. 4, but a growing number are
calling for the bank to start cutting rates next year.
The latest skid in the Canadian dollar, which follows what
was mostly an uninterrupted climb to record highs, has yet to
trigger much buying interest at reduced levels, something that
was common after recent declines.
"This leaves a lingering sort of sense that when the
Canadian dollar is going through periods of being sold off,
it's not going to be meeting aggressive buyers. It instead is
going to more than likely meet more active sellers," said
Canadian bond prices pushed higher, getting a boost from
investors who preferred to stay away from more risky assets in
favor of safer investments like bonds.
Support for bonds came early as domestic data showed
manufacturing sales fell by 0.9 percent in September, which was
steeper than the 0.5 percent drop expected by analysts.
"Obviously a flight to quality is still on people's minds
and sensitivity to weak data is pretty much at a peak right
now," said Chris Holmes, Canadian fixed income strategist at
J.P. Morgan Canada.
The two-year bond rose 19 Canadian cents to C$100.82 to
yield 3.828 percent, the lowest since Dec. 7, 2006. The 10-year
bond rose 63 Canadian cents to C$99.05 to yield 4.121 percent.
The yield spread between the two-year and 10-year bond
moved to 29.3 basis points from 26.4 at the previous close.
The 30-year bond gained C$1.12 to C$111.80 to yield 4.236
percent. In the United States, the 30-year Treasury
yielded 4.535 percent.
The three-month when-issued T-bill yielded 4.02 percent,
down from 4.06 percent at the previous close.