CANADA FX DEBT-C$ falls as stimulus hopes fade, China outlook

Fri Jun 8, 2012 8:21am EDT
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* C$ at C$1.0336 vs US$, or 96.75 U.S. cents
    * Bond prices mostly higher

    By Jon Cook	
    TORONTO, June 8 (Reuters) - The Canadian dollar fell against
the U.S. currency on Friday as  hopes for further stimulus
action from global central banks faded, despite the prospect of
slower economic growth in China and a credit ratings downgrade
for debt-ravaged Spain.	
    The lack of a clear signal on Thursday from U.S. Federal
Reserve Chairman Ben Bernanke that the central bank's June 19-20
meeting would bring in a new round of quantitative easing
overshadowed what had been a positive reaction in world markets
to a surprise Chinese interest rate cut.	
    The Canadian dollar rallied to a one-week high at
C$1.0210 versus the U.S. dollar, or 97.94 U.S. cents, after the
Chinese central bank's move on Thursday, but gave back gains
following Bernanke's comments and as analysts predicted further
weak data out of China this weekend.	
    "There's lots of worry about the activity indicators that
come out of China tomorrow," said Adam Cole, global head of
foreign exchange strategy at Royal Bank of Canada in London.
"That generally gave markets a much less positive tone for risk
and that took all the risk-proxy currencies lowe r including the
Canadian dollar."	
    Markets also worried about how Madrid can solve the crisis
at many of its banks caused by a property crash and recession, a
job complicated by Fitch's announcement on Thursday that it cut
Spain's sovereign credit rating by three notches to BBB from A.	
    "There's still questions hanging over the market as to
whether Spain needs and is prepared to ask for external help in
recapitalizing the banks and there seems to be no clarity coming
out on that and markets are selling risk on the back of it,"
said Cole.	
    At 8:03 a.m. (1203 GMT), the Canadian dollar was at C$1.0336
against the U.S. currency, or 96.75 U.S. cents, down from
Thursday's close at C$1.0279 or 97.29 U.S. cents.	
    In the near term, Cole said the currency would likely stay
in a range of C$1.02 on the high end and C$1.04 on the low end.	
    Since data last week showed weak U.S. job creation in May,
there has been rising speculation of more stimulus measures from
global central banks.	
    The Bank of Canada joined the European Central Bank in
holding rates on Tuesday, but the tone of its statement signaled
that its next move would be a rate hike. 	
    The market expects that the Canadian May employment figures
due out later on Friday will not match the outsized job gains in
the previous two months, which averaged almost 72,000 a month.
The median forecast in a Reuters survey of economists is for a
gain of 10,000. 	
    Canadian bond prices were mostly higher. The two-year bond
 rose 9 Canadian cents to yield 1.004 percent, while
the benchmark 10-year bond climbed 54 Canadian cents
to yield 1.757 percent.