CANADA FX DEBT-C$ skids to 4-month low on Europe fears

Wed May 23, 2012 1:14pm EDT
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* C$ hits low of C$1.0296 vs US$, or 97.13 U.S. cents
    * Bonds climb across curve; 30-yr yield at record low
    * Currency outperforms New Zealand and Australian dollars
    * Retail sales edge up 0.4 pct in March

    By Jennifer Kwan	
    TORONTO, May 23 (Reuters) - The Canadian dollar skidded to
its lowest level in more than four months against its U.S.
counterpart on Wednesday in tandem with the euro, global equity
and commodity markets as investors worried about Greece's
possible exit from the euro zone.	
    The currency fell to C$1.0296 versus the U.S.
dollar, or 97.13 U.S. cents, its weakest since Jan. 9, following
the broader market trend that saw investors shun riskier assets
on doubts that any new measures to tackle the euro zone debt
crisis would emerge from a European leaders summit later on
    "There's concerns generally about the banking system, but
once again that's primarily tied to the situation in Europe, "
sa id Mark Chandler, head of Canadian fixed income and currency
strategy at RBC Capital Markets.	
    The leaders are expected to discuss boosting growth at their
meeting later on Wednesday and the idea of a joint euro zone
bond. French President Francois Hollande supports the bond plan,
but German Chancellor Angela Merkel opposes it. 	
    As well, each euro zone country will have to prepare a
contingency plan for the eventuality of Greece leaving the
single currency, three euro zone sources told Reuters, citing an
agreement reached by officials. 	
    Lack of market confidence the summit would yield meaningful
progress sent the euro to a 21-month low. 	
    "We don't expect much by way of concrete proposals coming
out," said Chandler.	
    At around 1 p.m. (1700 GMT), the currency pared losses and
stood at C$1.0267 versus the U.S. currency, or 97.40 U.S. cents,
still significantly weaker than Tuesday's North American session
finish at C$1.0218.	
    Traders largely looked past a domestic report that showed
retail sales bounced back in March.	
    Canadian retail sales climbed in March after a February
setback, growing 0.4 percent as consumers bought more cars and
warm weather prompted them to begin their spring shopping for
items such as clothing, sporting goods and garden equipment.
    The rise was a notch above the 0.3 percent gain forecast by
market operators and followed a 0.2 percent decline in February,
according to government data. Excluding autos, however, sales
were up just 0.1 percent versus a market forecast for a rise of
0.5 percent rise.	
    "The retail sales number has had a very fleeting impact,"
said Greg Moore, a foreign exchange strategist at TD Securities. 	
    "The focus remains on Europe for now."	
    Canada's dollar notched a mixed performance against other
G10 currencies, but outperformed some of its commodity-linked
peers, reaching 2012 highs against the New Zealand and
Australian dollars.	
    Canada's two-year government bond climbed 16
Canadian cents higher to yield 1.136 percent, while the
benchmark 10-year bond rose 48 Canadian cents to
yield 1.859 percent. The 30-year yield touched a
record low level of 2.392 percent.	
    The Bank of Canada's auction of bonds due 2045 produced an
average yield of 2.413 percent, a record low. The bid-to-cover
ratio was 2.59 and reflected decent demand, said RBC's Chandler.	
    "It had a very small tail," he said. "When you have a small
tail like that there were a lot of bids close to where it got
auctioned off. So good demand."