December 19, 2011 / 2:02 PM / 6 years ago

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

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.

For the rest of the week, Canadian economic data, including October retail sales on Wednesday and gross domestic product for the same month on Friday, may help support the currency.

“While this data may turn out to be short-term positive into year-end, the European woes are certain to take the spotlight again in the new year,” said John Curran, senior vice president at CanadianForex.

Canadian government bond prices reversed earlier losses and edged higher across the curve, prompting the 30-year bond yield to drive again to a record low.

The two-year bond was up 2 Canadian cents to yield 0.840 percent, while the 10-year bond climbed 23 Canadian cents to yield 1.842 percent, after matching a multi-decade low yield of 1.837 percent. The 30-year bond jumped C$1 to yield 2.415.

Reporting By Claire Sibonney; Editing by Peter Galloway

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