November 23, 2011 / 2:44 PM / 6 years ago

Loonie hits near 7-week low on Europe, China

3 Min Read

TORONTO (Reuters) - The Canadian dollar sank to a near seven-week low against the U.S. currency on Wednesday as unrelenting fears about euro zone debt after a weak German bond auction and soft Chinese data weighed on investor sentiment.

World stock markets skidded as a poor sale of German benchmark bonds ignited fears the debt crisis would engulf the powerhouse economy.

There were other worrying signs for the global growth outlook. China's factory sector shrank at its fastest pace in 32 months on signs of domestic weakness. And the euro zone's private sector contracted for a third month, purchasing managers' indices showed.

The sour data pushed the Canadian currency to a low of C$1.0454 against the greenback, or 95.66 U.S. cents, its weakest level since October 6 and down from Monday's close at C$1.0378 against the greenback, or 96.36 U.S. cents.

"We had a bad German bond auction. If the Germans can't even sell their own bonds it's not looking good for risk on," said Firas Askari, head of foreign exchange trading at BMO Capital Markets.

"Equities are looking to open down, everything is negative again. The puck is back in risk-off mode. The Canadian dollar is taking it a little bit on the chin as expected for all perceived to be growth currencies."

At 9:08 a.m., the Canadian currency stood at C$1.0425 against the greenback, or 95.92 U.S. cents.

Despite the weakness, the Canadian currency was strengthening against most other major currencies. Many analysts have predicted the Canadian dollar would outperform against the euro and its commodity-linked peers if Europe's debt crisis worsened.

"The key cross to look at is EURO/CAD. So what you're seeing is the euro take it on the chin, particularly because of the German bond," said Askari.

He noted key technical levels to watch for included U.S. dollar resistance at C$1.0475 and support at around C$1.0360.

Canadian government bond prices were lower, with the two-year bond down 4 Canadian cents to yield 0.920 percent, while the 10-year bond fell 17 Canadian cents to yield 2.101 percent.

Editing by Jeffrey Hodgson

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