C$ drifts down, 30-year yield at record low

Mon Dec 19, 2011 5:01pm EST
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By Claire Sibonney

TORONTO (Reuters) - Canada's currency ended slightly lower against the U.S. dollar on Monday and the yield on the 30-year bond hit another record low as investors focused on the euro zone's uncertain economic outlook, which overshadowed stronger oil prices and encouraging domestic data.

North American equities and other risk assets fell after European Central Bank President Mario Draghi pointed to the dangers to euro zone growth arising from the debt crisis and dampened hopes for more aggressive bond purchases that have helped keep euro zone yields under control.

Oil prices settled higher, however - despite an initial flight-to-safety on news of the death of North Korean leader Kim Jong-il - as protests in Kazakhstan's oil-producing region raised the specter of further supply disruption.

Surprisingly resilient domestic economic data also cushioned the slide of Canada's commodity-linked currency in thin pre-holiday dealings. Wholesale trade rose unexpectedly in October, by 0.9 percent, with investment in machinery and equipment leading the way, according to Statistics Canada.

"It's been a very quiet day in terms of price action and general market action," said Elsa Lignos, G10 currency strategist at RBC Capital Markets in London.

"It's hard to draw too many conclusions in a market like this because there is such thin liquidity. We're coming up to the Christmas holiday, really things have wound down quite significantly. The moves aren't particularly big."

The Canadian dollar finished the North American session at C$1.0387 versus the greenback, or 96.27 U.S. cents, down slightly from Friday's North American session close of C$1.0370 against the U.S. dollar, or 96.43 U.S. cents.

Looking to longer-term trends, Lignos said that Middle East tension is an underappreciated risk for 2012, which is likely to drive oil prices higher, underpinning the Canadian and Australian dollars versus the euro, Swedish krona and New Zealand dollar.   Continued...