Canada dollar hits 4-1/2-month low on Europe, China

Wed May 30, 2012 10:55am EDT
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By Jennifer Kwan

TORONTO (Reuters) - Canada's dollar skidded to a four-and-a-half month low against its U.S. counterpart on Wednesday on worries about Spain's ailing banking sector and soaring borrowing costs, while China signaled it is not planning a large stimulus package.

Spanish government borrowing costs edged higher and the Madrid stock market hit a nine-year low, with investors rattled by the parlous state of its banking sector fleeing to the relative haven of German bonds.

"Equity markets are negative across the board in Europe and North America so risk sentiment is really not positive," said Charles St-Arnaud, economist and currency strategist at Nomura Securities in New York.

"There's concern about the banking sector in Spain given the amount of recapitalization that their system may need. It'll be a big hit on the fiscal situation in Spain."

The Canadian dollar hit C$1.0312 versus the U.S. dollar, or 96.97 U.S. cents, its weakest since January 9. At around 10:30 a.m. (1430 GMT), it was at C$1.0301, down from Tuesday's North American session close at C$1.0229 versus the U.S. dollar, or 97.76 U.S. cents.

Market observers also said investors fled risk after China signaled it does not need massive fiscal stimulus to stabilize growth and calm investors fretting that the global economy may slip back into a similar crisis as 2008-2009.

"The news flow overnight has not been particularly encouraging, so a lot of uncertainty still within Europe and pressure on the peripheral bond markets," said Shaun Osborne, chief currency strategist at TD Securities.

"I think China downplaying again the potential for stimulus measures have also contributed to this sort of risk-off undertone for the markets but it's really about watching the headlines and watching what's going on in Europe."   Continued...