CANADA FX DEBT-C$ sells off on global growth fears

Thu Jun 21, 2012 4:21pm EDT
 
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* C$ ends at C$1.0293 vs US$, or 97.15 U.S. cents
    * Weak Chinese, Europe, U.S. data fans growth worries
    * Domestic retail sales data weighs on currency
    * Canada tightens mortgage rules to cool house market

    By Jennifer Kwan
    TORONTO, June 21 (Reuters) - The Canadian dollar fell to a
one-week low against its U.S. counterpart o n T hursday as
investor fears about slowing global growth sent equity and
commodity markets sharply lower.
    Surveys on Thursday showed business activity across the euro
zone shrank for a fifth straight month in June and Chinese
manufacturing contracted, while weaker overseas demand slowed
U.S. factory growth. 
    The data darkened the outlook for the global economy and
pushed oil prices below $90 a barrel for the first time since
December 2010, while currencies of commodity-linked economies,
including Canada, Australia and New Zealand sold off as
investors dumped riskier investments and fled to the relative
safety of the U.S. dollar.  
    "The picture is still not bright. All the economic
indicators globally are down. That's the reality of the
situation. People are definitely shedding risk," said John
Curran, senior vice president at CanadianForex.
    He said he sees the currency trading as low as C$1.0420
against the greenback in the near term.
    The Canadian dollar ended the session at C$1.0293
versus the U.S. dollar, or 97.15 U.S. cents, nearly a cent down
from Wednesday's finish at C$1.0192, or 98.12 U.S. cents.
Earlier, the currency touched C$1.0296, its weakest against the
greenback since June 13.
    In another sign that Canadian second-quarter growth could be
unimpressive, retail sales in April posted a surprise 0.5
percent drop from March on general weakness. Analysts had
predicted a 0.3 percent month-on-month increase. 
    Also in the spotlight, the Canadian government tightened
rules for mortgages and household borrowing o n T hursday to make
it harder for home buyers and homeowners to take on massive debt
in an attempt to cool the still hot domestic housing market.
 
    The news was generally positive, but the move could weigh on
the Canadian dollar as it might take pressure off the Bank of
Canada to move quickly on interest rates, said Camilla Sutton,
chief currency strategist at Scotiabank.
    "From our perspective, it dampens the housing market. The
positive side is that it dampens it as opposed to crushing a
bubble that is allowed to just form year after year after year.
Having a slow decline is much better than having a complete
meltdown when a bubble is burst," said Sutton. 
    "It takes some of the pressure off the Bank of Canada," she
added.
    The Bank of Canada signaled on Thursday it is still
considering interest rate hikes, but cautioned it was keeping a
close eye on Europe and saw less risk from a heated domestic
housing market after the government tightened mortgage rules.
 
    Canadian bond prices climbed across the curve, mirroring
moves in the United States, where Treasury prices were higher on
the weak economic data, a day after the Federal Reserve said it
was ready to do more to help an increasingly fragile recovery.
 
    Canada's two-year bond was up 10 Canadian cents
to yield 1.043 percent, while the benchmark 10-year bond
 was up 38 Canadian cents to yield 1.748 percent.