CANADA FX DEBT-C$ back below parity Europe worries

Wed May 9, 2012 9:37am EDT
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* C$ hits low of C$1.0064 vs US$, or 99.36 U.S. cents
    * Weakest level since Jan. 30
    * But hits 2012 high against Australian dollar
    * Bond prices edge higher across curve

    By Jennifer Kwan	
    TORONTO, May 9 (Reuters) - Canada's dollar skidded to its
lowest level in three and half months on Wednesday, back below
parity against the U.S. dollar, as political disarray in Greece
and the rising costs of fixing Spain's banks fueled fears about
Europe's debt crisis.	
    The market's immediate attention was on Athens where efforts
to form a government were expected to fail, putting its ability
to meet the terms of its bailout deal in doubt and raising the
possibility of Greece being forced out of the euro.	
    Meanwhile, Spain will demand banks set aside another $45
billion against loans to builders as it battles to rebuild
confidence, sources told Reuters. Huge bank losses have raised
fears the country may need an international bailout.

    Those concerns pushed the Canadian currency to
C$1.0064 against the U.S. dollar, or 99.36 U.S. cents, its
weakest level since Jan. 30.	
    "The Canadian dollar is suffering from overall broader
themes on risk aversion stemming from the power shifts in
Europe," said John Curran, senior vice president at
    "People didn't want to believe that it would happen. It is
happening -- that Europe would rear its ugly head again."	
    At 9:15 a.m. (1315 GMT), the currency was at C$1.0045 versus
the greenback, or 99.55 U.S. cents, down from Tuesday's North
American session close at C$0.9983 versus the U.S. dollar, or
    The Canadian dollar largely underperformed its G10 currency
cousins including the euro and Japanese yen, and it broke
through a recent trading range of C$1.0050 against the U.S.
    But it made gains against some other commodity-linked
currencies, reaching a 2012 high of C$1.0062 against the
Australian dollar.	
    "It's Europe by and large ... it all lends itself to a
market that is led and dominated by the flight to quality and
flight to liquidity flow that we see in times like this," said
Jack Spitz, managing director of foreign exchange at National
Bank Financial.	
    "The market is looking to buy the U.S. dollar, buy the yen.
Back to rumors, back to speculation about how bad things can
get, rather than how good things can get, so 'the glass is half
empty' is really the sentiment that the market seems to be
taking from what's going on in Europe."	
    "It's more or less the 200-day moving average. We're hearing
of stops at C$1.0060-C$1.0070 but we're still trading inside the
range," added Spitz, noting Canadian monthly employment data due
Friday will provide further direction.	
    The currency fell in tandem with global equity and commodity
markets as concerns over Europe added to worries about the
impact of softer growth in the U.S. 	
    Canadian bond prices edged higher, tracking firmer U.S.
Treasuries amid the risk-off tone in markets. 	
    Canada's 2-year bond added 6 Canadian cents to
yield 1.195 percent, while the benchmark 10-year bond
 rose 23 Canadian cents to yield 1.947 percent.