* Drops to C$0.9909 to the US$, or $1.0092
* Touches weakest since March 17, traders eye US$ parity
* Bond prices jump as investors continue to exit risk
By Andrea Hopkins
TORONTO, Aug 8 Canada's dollar dropped more
than a cent to a near five-month low against the U.S. currency
on Monday, on rising fears of a U.S. recession exacerbated by
the United States' loss of its triple-A credit rating.
The currency was caught up in a wave of selling that saw
U.S. stocks plunge more than 6 percent as investors fled to the
safety of gold and bonds. [MKTS/GLOB]
And analysts warned falling equity markets and energy
prices could drive the commodity-linked Canadian currency even
lower in the week ahead, perhaps even to equal footing with the
The Canadian and U.S. currencies were last equal in
"If there are continued moves such as we've seen in every
other asset class, parity here we come by week-end," said C.J.
Gavsie, managing director of foreign exchange sales at BMO
"In addition to the stock markets, there is a lot of
pressure from the oil side, and that decline has had and
continues to have tremendous pressure on the Canadian dollar,"
The price of oil, a key Canadian export, dropped more than
5 percent to $81.31 a barrel a barrel. [O/R]
The Canadian dollar CAD=D4 closed the session at C$0.9909
to the U.S. dollar, or $1.0092, having regained some ground
since hitting C$0.9930, or C$1.0070, earlier in the day. That
was its lowest level since March 17.
The day's close was well below Friday's North American
session close at C$0.9781 to the U.S. dollar, or $1.0224.
"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."
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]
Equity markets dropped on Monday in the third day of
The Dow Jones Industrial Average closed down 5.6 percent,
while the S&P 500 was down 6.7 percent and the Nasdaq lost 6.9
Losses in Toronto were only slightly less pronounced, with
the Toronto Stock Exchange's S&P/TSX composite index .GSPTSE
down 4.04 percent. [.TO]
Deep-rooted jitters after Standard & Poor's cut the U.S.
debt rating from its top-notch level on Friday sent world
stocks towards their lowest point in a year, overshadowing
relief that the European Central Bank was buying bonds of euro
zone strugglers Italy and Spain.
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 50 Canadian cents
to yield 0.813 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)