CANADA FX DEBT-C$ hits 3-week low on soft data, looming Greek default

Tue Jun 30, 2015 4:31pm EDT
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* Canadian dollar at C$1.2419, or 80.52 U.S. cents
    * Bond prices mostly higher, long-dated bonds slip

 (Adds details, quote, updates to close)
    By Alastair Sharp and Leah Schnurr
    TORONTO, June 30 (Reuters) - The Canadian dollar fell to its
weakest level against the greenback in more than three weeks on
Tuesday, hit by a surprise economic contraction at home at the
start of the second quarter as investors watched Greece approach
default on its debt.
    Canadian economic growth unexpectedly edged down 0.1 percent
in April, hurt by a decline in activity in mining and oil and
gas extraction, data from Statistics Canada showed.
    The monthly decline boded poorly for an anticipated pick-up
in growth in the second quarter and the loonie fell as traders
calculated the Bank of Canada's likely policy reaction.
    "The numbers mitigate or argue against the (Bank of Canada
Governor Stephen) Poloz line that he's been highlighting over
recent months regarding the downturn being essentially
front-loaded or certainly likely to be contained by the end of
Q1," said Jeremy Stretch, head of foreign exchange strategy at
CIBC World Markets in London.
    The Canadian dollar extended declines later in the session
as the deadline for Greece to repay a loan to the International
Monetary Fund crept closer. Talks between lenders and Greece
broke down over the weekend and a default could set Greece on
the path of leaving the euro zone. 
    "Greece is essentially a powder keg that could explode at
any point in time and people just don't know what's going to
happen and what the repercussions are going to be," said Rahim
Madhavji, president at in Toronto.
    The Canadian dollar ended the North American
session at C$1.2490 to the greenback, or 80.06 U.S. cents,
weaker than Monday's close of C$1.2392, or 80.70 U.S. cents. The
loonie touched a session low of C$1.2500, its weakest level
since June 5.
    Month-end volatility and investor positioning ahead of
holidays in both Canada and the United States later in the week
were also adding to the Canadian dollar's moves, said Madhavji.
    While the loonie is likely to oscillate around C$1.25, it
could fall to C$1.27 in the coming weeks if the Greek crisis
deepens, he said.
    Canadian government bond prices were higher across the
maturity curve, with the two-year price up 16.5
Canadian cents to yield 0.483 percent and the benchmark 10-year
 rising 57 Canadian cents to yield 1.683 percent. 
    The Canada-U.S. two-year bond spread was -16.2 basis points,
while the 10-year spread was -67 basis points. 

 (Editing by Peter Galloway and Richard Chang)