March 20, 2012 / 8:38 PM / 5 years ago

CANADA FX DEBT-C$ slips to near 2-week low on China fears

3 Min Read

* C$ ends at C$0.9918 vs US$, or $1.0083

* China, commodity fears weigh

* Bonds yields back away from 2012 highs

By Claire Sibonney

TORONTO, March 20 (Reuters) - The Canadian dollar sank to a near two-week low against its U.S. counterpart on Tuesday as renewed concerns about China's economic growth boosted the greenback's safe-haven appeal.

Global miner BHP Billiton said it saw signs that growth in iron ore demand was flattening in China, sending global stock markets down and bond prices up.

In addition, China's National Development and Reform Commission raised domestic retail energy prices for the second time in less than two months. Even though that still leaves a wide gap between international and domestic prices, investors were concerned that higher energy costs could further undermine an already slowing Chinese economy.

Mazen Issa, Canada macro strategist at TD Securities, said the news from China set a negative tone in sentiment for the day, but still expected the Canadian dollar to stick to its tight range around parity against the U.S. dollar.

"Downward pressure at least on broader equities is also probably weighing on the Canadian dollar. The correlation with Canadian dollar and the S&P 500 is still holding," he added.

The Canadian dollar still outperformed other growth-related commodity currencies, such as the Australian dollar, which is much more closely tied to China's economy.

Canada's currency ended the North American session at C$0.9918 versus the U.S. dollar, or $1.0083, down from Monday's close at C$0.9875 versus the greenback, or $1.0127. Earlier, the Canadian dollar softened to C$0.9970, or $1.0030, its weakest level since March 8.

Matt Perrier, a director of foreign exchange sales at BMO Capital Markets, said he expected the Canadian currency would likely trade between parity with the U.S. dollar and C$0.9850 in the near term.

Recently, the U.S. dollar has been boosted by a steady stream of encouraging U.S. economic data, reducing the likelihood of further stimulus from the Federal Reserve.

"The news has been good on the North American economic front, but until you start to see the market price in some interest rate moves we're not going to get a huge, knee-jerk reaction," said Perrier.

Canada's two-year bond was up 1 Canadian cent to yield 1.290 percent. The 10-year bond rose 8 Canadian cents to yield 2.280 percent. Canadian government bond yields pulled back from 2012 highs reached on Monday.

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