CANADA FX DEBT-C$ sets 12-year low on lower crude prices, risk aversion
(Adds strategist comment, updates prices to close) * Canadian dollar ends at C$1.4080, or 71.02 U.S. cents * Currency hit a fresh 12-year low * Bond prices higher across the maturity curve TORONTO, Jan 6 (Reuters) - The Canadian dollar set a fresh 12-year low against its U.S. counterpart on Wednesday as oil prices tumbled, investors sought safety from rising geopolitical tensions, and China fueled fears about its economy by allowing the yuan to weaken. The broader concerns overshadowed improvement in Canada's trade deficit, at one point pushing the currency above C$1.41 to the greenback, a level last hit in August 2003. The Canadian dollar also extended losses against the Japanese yen, already at a three-year low, as the Asian currency saw safe-haven flows amid escalating tensions in the Middle East and after a nuclear test by North Korea. "The events that did unfold in North Korea yesterday created a flight to quality flow in FX which the Canadian dollar is not a beneficiary of," said Jack Spitz, managing director of foreign exchange at National Bank Financial. The Canadian dollar settled at C$1.4080 to the greenback, or 71.02 U.S. cents, much weaker than the Bank of Canada's official close of C$1.3989, or 71.48 U.S. cents. It has steadily weakened since breaking above C$1.35 in early December, as the U.S. Federal Reserve raised rates for the first time in nearly a decade and as economists consider possible Bank of Canada rate cuts in 2016. Canada posted a smaller-than-expected trade deficit of C$1.99 billion in November from a revised C$2.49 billion gap in October on increased exports to the United States, data from Statistics Canada showed. "It's a step in the right direction," said BMO Capital Markets senior economist Sal Guatieri. The weaker Canadian dollar is the main reason behind improvement in Canada's trade balance, according to Guatieri. "The currency's impact on growth should improve through the year," Guatieri added. North Korea's reported successful nuclear test and further weakening in China's yuan after data showed the nation's services Purchasing Managers' Index expanded at its slowest rate in 17 months weighed on sentiment. Oil prices slid as a row between Saudi Arabia and Iran made any cooperation between major exporters to cut output even less likely. U.S. crude prices settled down 5.6 percent at $33.97 a barrel, while Brent crude lost 5.9 percent to $34.27. Canadian government bond prices rose across the maturity curve on the flight to safety, with the two-year price up 7 Canadian cents to yield 0.415 percent and the benchmark 10-year rising 42 Canadian cents to yield 1.329 percent. (Reporting by Alastair Sharp and Fergal Smith; Editing by Lisa Von Ahn and Chris Reese)
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