CANADA FX DEBT-C$ hits 4-month low in "new chapter" of Europe crisis

Thu May 17, 2012 4:30pm EDT
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* Ends at C$1.0191 vs US$, or 98.13 U.S. cents
    * Bond prices rally across the curve

    By Claire Sibonney	
    TORONTO, May 17 (Reuters) - Canada's dollar hit a four-month
low against the U.S. dollar on Thursday as investors were
gripped by worries about European banks and the prospect of
Greece leaving the euro zone	
    Uninspiring U.S. and Canadian economic data added to the
    Fears about Spain's banks resurfaced after a newspaper
report that customers at Bankia, the partly
nationalized lender, had withdrawn more than 1 billion euros
from their accounts in the past week. The Spanish government
said there had been no exit of deposits. 	
    The report followed suggestions that customers of Greek
banks were moving funds in expectation of the country's exit
from the euro, adding to broader anxiety about the region's debt
    "To me, at the top of the list (of concerns) is banking ...
particularly bank runs and the signs of bank runs, that's a new
chapter that's being opened in Europe and that is behind  the
considerably elevated worries," said Adam Button, currency
analyst at ForexLive in Montreal.	
    The Canadian dollar ended the North American
session at C$1.0191 versus the U.S. dollar, or 98.13 U.S. cents,
down from Wednesday's finish at C$1.0127 versus the U.S. dollar,
or 98.75 U.S. cents. It was the currency's fourth straight day
of losses as hit its weakest level since Jan. 16. 	
    Button said the Canadian dollar could easily slip back to
the C$1.04 area in the next month, particularly if the Bank of
Canada begins to indicate that it is less eager to hike interest
    "The Bank of Canada will back down from its hawkish
rhetoric. We're seeing increasing signs of slowing growth in the
U.S., in China and, of course, in Europe," he said.	
    "Moreover, commodity prices are indicating a slowdown in
worldwide growth and that's the No. 1 concern for the Bank of
    The focus on global risks takes some of the pressure off
domestic data in driving direction for the Bank of Canada, with
investors cutting bets for a rate hike later this year.
    Still, markets will be paying attention to Canadian
inflation data for April on Friday. According to a Reuters poll,
Canadian consumer prices likely remained subdued, suggesting
price pressures are the least of the Bank of Canada's worries.
    "Negative risk-appetite in the market as concerns over
Europe and Greece continue to be forefront in market sights
here," said Matt Perrier, director of foreign exchange sales at
BMO Capital Markets.	
    A round of mostly disappointing North American economic data
also weighed on sentiment.	
    A gauge of future U.S. economic activity fell in April for
the first time in seven months and the Philadelphia Fed business
conditions index hit its lowest since September. 	
    In addition, the weekly U.S. claims for jobless benefits
remained at levels that indicated the pace of hiring remains
lackluster, increasing worries about the domestic recovery. 	
    In Canada, while wholesale trade figures came in slightly
better than expected, other data showed foreign investors
reduced their holdings of Canadian securities for the second
time in three months in March.  	
    Canadian bond prices rallied across the curve, outperforming
U.S. Treasuries in the rate-sensitive short end of the curve but
lagging at the long end. The two-year government bond 
jumped 14 Canadian cents to yield 1.234 percent, while Canada's
10-year bond gained 39 Canadian cents to yield 1.881