Canadian Dollar Falls as Lehman Files for Record Bankruptcy

By Ye Xie

Sept. 15 (Bloomberg) -- The Canadian dollar fell the most in more than two weeks as Lehman Brothers Holdings Inc.'s bankruptcy filing raised speculation that deepening financial losses may prolong the economic slowdown in the U.S., Canada's largest export market.

The currency also dropped after crude oil fell below $95 a barrel to the lowest in seven months. Commodities such as oil and gold make up half of the country's exports. Canada's dollar depreciated the most versus the yen since November as traders cut holdings of high-yielding assets funded by loans in Japan.

``It's certainly a disaster,'' said Steven Butler, director of foreign-exchange trading at Scotia Capital Inc. in Toronto. ``There's a flight back to less-risky assets. As commodities come off, I won't be surprised to see the Canadian dollar suffer.''

Canada's dollar, dubbed the loonie because of the aquatic bird on the one-dollar coin, fell 0.9 percent to C$1.0691 per U.S. dollar at 8:51 a.m. in Toronto, from C$1.0601 on Sept. 12. It declined 1.2 percent on Aug. 29. One Canadian dollar buys 93.53 U.S. cents.

The loonie declined as low as 97.84 yen, the weakest since April, as investors pared carry trades, in which they borrow in countries with low interest rates to buy high-yielding assets elsewhere.

Canada's dollar rose versus currencies of other commodity exporters that offer higher yields. It gained 0.5 percent versus the Norwegian krone. The benchmark interest rate in Japan is 0.5 percent, compared with 3 percent in Canada and 5.75 percent in Norway.

`Taking Money Home'

``People are getting out of carry trades and taking money back home,'' said Butler. ``The mood on the trading floor is extremely edgy.''

The yield on Canada's two-year government bond fell 20 basis points, or 0.20 percentage point, to 2.57 percent. Earlier it reached 2.56 percent, the lowest since March 31. The price of the 2.75 percent security maturing in December 2010 rose 43 cents to C$100.38. The yield on Canada's 10-year government bond fell 9 basis points to 3.50 percent.

Lehman, the fourth-largest U.S. investment bank, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today. The collapse of Lehman, which listed more than $613 billion of debt, is the largest in history. In another development, Bank of America Corp. agreed to acquire Merrill Lynch & Co. for about $50 billion.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net