CANADA FX DEBT-C$ weakens to 2-1/2 month low, Sandy hits volumes

Mon Oct 29, 2012 5:12pm EDT
 
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* C$ ends at C$1.0008 vs US$, or $99.92 U.S. cents
    * First time below US$ parity since August
    * Approaching hurricane kept volumes light
    * Bond prices rally across the curve

    By Claire Sibonney
    TORONTO, Oct 29 (Reuters) - Canada's dollar weakened below
parity with the greenback for the first time since August on
Monday, hurt by worries about global economic growth and falling
oil prices as the massive storm set to pummel the U.S. East
Coast kept trading volumes light.
    Hurricane Sandy, one of the biggest storms ever to hit the
United States, forced New York and other cities to close public
transport systems and schools and order mass evacuations.
 
    The storm closed Wall Street on the anniversary of the 1929
stock market crash, with all U.S. stock markets shut in the
first weather-related closure in 27 years. They were expected to
remain closed on Tuesday. 
    "With some of the U.S. markets away, it really does cut into
liquidity, so it's been a quiet day even though (U.S.)
dollar/Canada has traded through parity," said Camilla Sutton,
chief currency strategist at Scotia Capital.
    Brent and U.S. crude futures retreated as the shutdown of
two-thirds of the U.S. East Coast refining sector ahead of
Hurricane Sandy put pressure on oil prices. 
    Weaker commodity prices have added to a host of negative
factors causing the Canadian dollar to lag over the past couple
weeks. Other factors have included less hawkish talk from the
Bank of Canada and the federal government's surprise decision to
block the takeover of Canada's Progress Energy by
Malaysia's Petronas.
    "There's been a tremendous focus on the M&A side of Canada,"
 Sutton said, referring to the failed Petronas deal and
questions about how receptive the country may be to foreign
capital in the future. 
    The currency also took a hit after Moody's said on Friday it
was reviewing five top Canadian banks for possible rating
downgrades due to concerns about a softening economy and
volatile capital markets. 
    Meanwhile, the U.S. dollar was broadly stronger on Monday,
hurt by uncertainty over whether Greece would be able to agree
to a euro zone deal on austerity, and with no sign of when, or
if, Spain might request European aid. 
    The Canadian dollar ended the North American
session at C$1.0008 to the greenback, or $99.92 U.S. cents,
compared with C$0.9980, or $1.0020, at Friday's close. 
    The currency's low for the day was C$1.0010, or 99.90 U.S.
cents, its weakest level since Aug. 7.
    "We should see some decent buying interest above parity, but
this is just on the back of a more general (U.S.) dollar move,"
said Elsa Lignos, a London-based currency strategist at Royal
Bank of Canada.
    Scotiabank's Sutton said that after the Canadian dollar
broke through significant technical support around parity, the
next near-term level to watch is the Aug. 2 low of C$1.0085, or
99.16 U.S. cents.
    Volumes in the foreign exchange market were very light.
    Canadian government debt prices outperformed U.S. Treasuries
across the curve. U.S. bond markets closed at noon eastern (1600
GMT) due to the storm.
    Canada's two-year bond rose 7 Canadian cents to
yield 1.086 percent, and the benchmark 10-year bond 
gained 42 Canadian cents to yield 1.793 percent.