CANADA FX DEBT-C$ hits 2-week low as euro zone efforts flounder

Wed Sep 26, 2012 4:55pm EDT
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* C$ at C$0.9852 vs US$, or $1.0150
    * Euro zone concerns spark equity, commodity selloff
    * Bond prices rise across the curve

    By Solarina Ho
    TORONTO, Sept 26 (Reuters) - The Canadian dollar hit a
two-week low against the U.S. currency on Wednesday, tracking
weaker global stock and commodity markets, as worries over
Spain's commitment to reform added to persistent unease over the
global economic outlook.
    World shares fell and the euro slipped to a two-week low
amid a second day of violent anti-austerity protests in Madrid
and talk of secession by Spain's wealthy Catalonia region.
Spanish Prime Minister Mariano Rajoy, who had been reluctant to
ask for help, vowed that he is committed to fiscal and
structural reforms. 
    A general strike in Greece and signs of discord among top
euro zone officials over new policies to tackle the crisis added
to investor concerns, taking the gloss off recent moves by the
European Central Bank to calm markets by buying bonds.
    "What's going on under the surface, or at least had really
defined the market earlier in the day, is that all the progress
that we'd made in the last couple of weeks with respect to
Europe had basically run a little ahead of itself," said David
Tulk, chief Canada macro strategist at TD Securities.
    "We're in this waiting period right now for Spain to get its
act together ... The bears are a little bit louder than the
bulls today."
    Concern over the euro zone's ability to tackle its financial
crisis has sparked a sharp rise in volatility on equity markets,
leading to the worst day since June for the S&P 500 index on
Tuesday and subsequent falls across Asia.    
    "There's no one thing in particular the market's focusing
on. We've just had this constant drip-feed of what's been taken
as negative news," said Adam Cole, global head of FX strategy at
RBC Capital Markets in London.
    "None of them is really new, nothing that we didn't already
know, but the fact that it's just been relentless all day, 
really, has given us this negative tone for risk generally and
that's weighing on the Canadian dollar."
    The Canadian dollar finished Wednesday's North
American session at C$0.9852 versus the U.S. dollar, or $1.0150,
down from Tuesday's close at C$0.9806, or $1.0198.
    The Canadian dollar, which touched a 13-month high a week
and a half ago, also underperformed against other major
    Tulk said the currency's retreat was likely not over.
    "We probably have a little bit further to run as you wait
for more of these headlines to come out -- and our sense is that
there's a little bit more bad news, or at least a sense of
impatience on the part of the market," he said.
    While Tulk says trading around the C$0.98 level was not
unreasonable in the near term, TD does project the Canadian
dollar to return to parity by the end of the year.
    Canadian government bond prices were higher across the
curve. The two-year bond rose 6 Canadian cents to
yield 1.091 percent, while the benchmark 10-year bond
 gained 60 Canadian cents, yielding 1.749 percent.