* C$ drops to C$0.9930 to the U.S. dollar, or $1.0070
* Weakest since March, traders eye US$ parity
* Bond prices jump as investors continue to exit risk
By Andrea Hopkins
TORONTO, Aug 8 Canada's dollar weakened to a
near five-month low against the U.S. currency on Monday,
approaching parity, as global fear about a possible double-dip
U.S. recession and European and U.S. debt crises weighed.
The euro also fell against the dollar, down more than 1
percent, while the yen gained broadly as investors sought
Japan's safe-haven currency given tumbling global stocks.
"A number of important benchmark markets around the world
are in bear market territory now ... so this is an environment
where risk aversion is probably going to persist," said Shaun
Osborne, chief currency strategist at TD Securities.
"In that kind of environment we would expect the Canadian
dollar to continue underperforming."
Equity markets dropped on Monday in the third day of
fevered selling as investors fled riskier assets in the wake of
the weekend downgrade of U.S. sovereign debt and continued
worries of a contagion of European debt.
U.S. and Toronto stocks were both down more than 2 percent
in mid-morning trade. [.N][.GSPTSE]
The Canadian dollar CAD=D4 fell as low as C$0.9930 to the
U.S. dollar, or $1.0070, its weakest since March 17.
At 11:20 a.m. (1520 GMT) it had regained a little ground,
at C$0.9885 to the U.S. dollar, or $1.0117, still well below
Friday's North American session close at C$0.9781 to the U.S.
dollar, or $1.0224.
The Canadian dollar, which was within striking distance of
hitting a modern-day high not even a month ago, has lost more
than 5 cents since late July, swept up in the global sell-off
of riskier assets. [ID:nN1E76K0DV]
Osborne said a lot of technical signals suggest the U.S.
dollar may continue to rally against Canada's commodity-linked
currency and even break through parity. The Canadian and U.S.
currencies were last equal in February.
Deep-rooted jitters after Standard & Poor's cut the U.S.
debt rating from its top-notch level on Friday sent world
stocks towards a 11-month low, overshadowing relief that the
European Central Bank was buying bonds of euro zone strugglers
Italy and Spain. [MKTS/GLOB]
The price of oil, a key Canadian export, dropped more than
3 percent to below $84 a barrel. [O/R]
Investors were seemingly unimpressed by weekend talks
between the Group of Seven industrialized countries aimed at
safeguarding the smooth functioning of financial markets
following the U.S. debt rating cut to AA-plus from AAA.
Uncertainty over economic growth in the United States is a
major factor putting pressure on the Canadian dollar, the U.S.
being Canada's biggest trading partner.
"Canada still has a number of safe-haven elements to it,
but so long as you've got intense uncertainty about the U.S.
and global growth outlooks, they're not necessarily going to
shine through," David Watt, senior currency strategist at RBC
Government bonds pushed sharply higher, shaking off the S&P
downgrade as stocks bore the brunt of the flight from risk.
Canada's two-year bond CA2YT=RR jumped 43 Canadian cents
to yield 0.849 percent, while the 10-year bond CA10YT=RR
climbed C$1.37 cents to yield 2.487 percent.
Canadian government bonds outperformed short- and
medium-term U.S. Treasuries following the downgrade. But a
surge in safe-have demand for long-term U.S. debt on jitters
about the economy meant Canada underperformed at the long end.
(Editing by Jeffrey Hodgson)