CANADA FX DEBT-C$ weakens after Cyprus vote, factory data dip

Tue Mar 19, 2013 4:47pm EDT
 
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* C$ at C$1.0270 versus US$, or 97.37 U.S. cents
    * Weak manufacturing data hurts currency; Cyprus rescue in
disarray
    * Domestic retail sales data, Fed statement eyed for future
direction

    By Alastair Sharp
    TORONTO, March 19 (Reuters) - The Canadian dollar ended
sharply weaker on Tuesday, under pressure from soft domestic
factory data and as Cypriot lawmakers voted down a proposed levy
on bank savings that threw international efforts to rescue the
country into disarray. 
    The rejection in Cyprus means a 10 billion euro ($12.9
billion) bailout package from European Union peers would be
withheld and could lead to financial meltdown in the tiny
Mediterranean island. 
    Still, the broader fallout was seen as likely limited in
scope and duration unless similar plans to tax deposits are
adopted elsewhere in the euro zone.
    "Cyprus was a sudden surprise for the markets to have to
price these uncertainties in," said Greg Moore, a foreign
exchange strategist at TD Securities. "But I don't think we're
in a situation like we were with Greece where we have ongoing
headline risk for two years."
    On the domestic front, Canadian manufacturing sales
unexpectedly fell in January due to weak production in the
aerospace, auto and energy industries, Statistics Canada said.
 
    The Canadian dollar ended the session at C$1.0270
to the greenback, or 97.37 U.S. cents, compared with C$1.0223,
or 97.82 U.S. cents, at Monday's North American close.
    It had weakened in early trade after the factory data, which
Matt Perrier, managing director of foreign exchange sales at BMO
Capital Markets, said pushed it to challenge U.S. dollar
resistance levels around C$1.0255/60.
    It later pushed past those barriers to trade as high as
C$1.0285 just ahead of the Cypriot rejection of a deposit tax.
    Looking ahead, the currency could get a boost if the U.S.
Federal Reserve's main policy-setting committee affirms its
support for continued monetary easing on Wednesday or domestic
retail sales data beats expectations on Thursday.
    "Thursday's retail sales figure could get a Canadian dollar
reaction, for both of those, Fed and retail sales, TD's
forecasts suggest they could be CAD positive," TD's Moore said.
    Prices for Canadian government debt rose across the curve,
with the two-year bond up 4 Canadian cents to yield
0.968 percent, while the benchmark 10-year bond rose
40 Canadian cents to yield 1.819 percent.