CAD Losses Against U.S. Dollar, While EURO gains

Poor equity-market performance continues to favour U.S. dollar bullishness at the expense of the loonie on Wednesday.

The Dow Jones industrial average is down 322.97 points to 8370.99 and the S&P 500 is down 37.37 to 861.58. The CAD/USD is down 0.0162 to 0.8123 (USD/CAD at 1.231). Adding to the loonie's woes are slumping commodity prices. West Texas Intermediate crude oil is now down $3.15 per barrel to $56.18.

Similarly, the loonie is down 3.36 points to 77.54 against the Japanese yen, which has been strong during current waves of risk aversion in financial markets.

The Canadian dollar is down 0.0139 to 0.6476 against the euro. CIBC FX strategists anticipate further gains by the euro (EUR/CAD 1.5442).

"We advocate flattening previously suggested long EUR/CAD positions at current levels, and would begin rebuilding core short positions on further cross strength to 1.5500-1.5600, using 1.5700 as the clear risk point," they wrote.

The Canadian dollar is meanwhile up 0.0076 to 1.2676 against the Australian dollar and up 0.0048 to 0.5433 against the weakening pound sterling. The CAD/GBP had been at session lows of 0.5366 at 5:30 a.m. EST when a dovish Bank of England (BOE) quarterly inflation report pushed the pound down against all major foreign currencies.

Commerzbank's Peter Dixon wrote in a reactionary e-mail to clients that interest rate cuts to 2.00% (from 3.25%) will likely be realized by next summer.

"This morning's release of the Inflation Report shows that the BoE is expecting a sharp downturn in economic activity over the next twelve months, with GDP growth next year likely to contract by at least 1.5%," he wrote, noting that a sub-2% overnight lending rate could prove unnecessary. "Either way, low interest rates are here to stay for at least the next two years."

CAD/USD down 0.0162 to 0.8123.
CAD/EUR down 0.0139 to 0.6476.
CAD/JPY down 3.36 to 77.54.
CAD/GBP up 0.0048 to 0.5433.
CAD/AUD up 0.0076 to 1.2676.

Asian Stock falls Again After Paulson Adjusts TARP Plan

Asian stock markets are falling again today after more dismal news out of the United States sent Wall Street stocks plummeting.Economists at Barclays Capital said worries over electronics company Best Buy and automaker GM, mixed with concern over an IMF bailout for Iceland and the descent in the Russian Ruble are all weighing on investor sentiment in Asia. Worst of all for sentiment, they added, is U.S. Treasury Secretary Henry Paulson's announcement today that half of the $700 billion TARP plan would not go to financial institutions but to support consumer credit,

"It reflects the short-comings in the TARP in terms of its ability to mitigate the real economy impact of the credit crunch," they said.

Economists at Calyon said the growing uncertainty in the United States will weigh on Asian markets today.

Sydney's S&P ASX 200 is down 169.40 points to 3757.9.

The Japanese Nikkei is down 445.46 points to 8250.047 and the Hang Seng down 786.97 points to 13152.12.

In currency markets, the Australian dollar lost more than two cents against the U.S. dollar today.

"The AUD has also suffered amid the continued losses in equities," said Amanda Tan, economist with St. George.

The Australian dollar is up 0.30 cents to 0.6435 against the USD and up 0.18 cents to 0.7947 against the Canadian dollar.

Meanwhile, the yen is on its way up as the usual winner in a flight-to-safety environment.

"Risk aversion is lending familiar support to the JPY," said Patricia Gacis, strategist with ANZ.

Against the yen, the U.S. dollar is up 0.71 points to 95.72 and the Canadian dollar is up 0.78 points to 77.48.

The euro is down 0.20 cents to 1.2480 USD

As for bonds, yields on Australian 10-year bonds down 16.1 bps to 4.92 % and Japanese 10-year government bonds down 1.0 bps to 1.50 %.

Yields on three-year Australian bonds were down 1.9 bps to 4.70 and the Australian 90-day March 09 contract is up 9.0 ticks to 96.58.

The Euroyen March 09 contract is down 0.5 ticks to 99.31.

In Australia, markets received the consumer inflation expectation for November, posting a decline to 3.3% from 4.4% in October.

There are no data releases of note tomorrow.

In Japan earlier today, domestic corporate goods prices ticked down by 1.6% month-over-month in October compared to forecasts for a 0.9% fall, and the prior month's downwardly revised 0.6% drop, which was previously reported as -0.4%.

Later today markets will receive final industrial production figures for September as well as the final capacity utilization operating manufacturing ratio for September.

With no data releases of note out of Japan tomorrow, markets will look ahead to Japan's release of third quarter GDP on Monday.