June 21, 2012 / 8:24 PM / 5 years ago

C$ sells off on global growth fears

TORONTO (Reuters) - The Canadian dollar fell to a one-week low against its U.S. counterpart on Thursday as investor fears about slowing global growth sent equity and commodity markets sharply lower.

Surveys on Thursday showed business activity across the euro zone shrank for a fifth straight month in June and Chinese manufacturing contracted, while weaker overseas demand slowed U.S. factory growth.

The data darkened the outlook for the global economy and pushed oil prices below $90 a barrel for the first time since December 2010, while currencies of commodity-linked economies, including Canada, Australia and New Zealand sold off as investors dumped riskier investments and fled to the relative safety of the U.S. dollar. <O/R><FRX/>

“The picture is still not bright. All the economic indicators globally are down. That’s the reality of the situation. People are definitely shedding risk,” said John Curran, senior vice president at CanadianForex.

He said he sees the currency trading as low as C$1.0420 against the greenback in the near term.

The Canadian dollar ended the session at C$1.0293 versus the U.S. dollar, or 97.15 U.S. cents, nearly a cent down from Wednesday’s finish at C$1.0192, or 98.12 U.S. cents. Earlier, the currency touched C$1.0296, its weakest against the greenback since June 13.

In another sign that Canadian second-quarter growth could be unimpressive, retail sales in April posted a surprise 0.5 percent drop from March on general weakness. Analysts had predicted a 0.3 percent month-on-month increase.

Also in the spotlight, the Canadian government tightened rules for mortgages and household borrowing on Thursday to make it harder for home buyers and homeowners to take on massive debt in an attempt to cool the still hot domestic housing market.

The news was generally positive, but the move could weigh on the Canadian dollar as it might take pressure off the Bank of Canada to move quickly on interest rates, said Camilla Sutton, chief currency strategist at Scotiabank.

“From our perspective, it dampens the housing market. The positive side is that it dampens it as opposed to crushing a bubble that is allowed to just form year after year after year. Having a slow decline is much better than having a complete meltdown when a bubble is burst,” said Sutton.

“It takes some of the pressure off the Bank of Canada,” she added.

The Bank of Canada signaled on Thursday it is still considering interest rate hikes, but cautioned it was keeping a close eye on Europe and saw less risk from a heated domestic housing market after the government tightened mortgage rules.

Canadian bond prices climbed across the curve, mirroring moves in the United States, where Treasury prices were higher on the weak economic data, a day after the Federal Reserve said it was ready to do more to help an increasingly fragile recovery. <US/>

Canada’s two-year bond was up 10 Canadian cents to yield 1.043 percent, while the benchmark 10-year bond was up 38 Canadian cents to yield 1.748 percent.

Reporting By Jennifer Kwan; Editing by Dan Grebler

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