CANADA FX DEBT-C$ catches safety bid as Europe fears mount

Mon Apr 23, 2012 4:48pm EDT
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* C$ ends at C$0.9910 vs US$, or $1.0091
    * Euro zone PMI, politics hit global markets
    * Bank of Canada's more hawkish tone still supports
    * Bonds climb across curve

    By Jon Cook	
    TORONTO, April 23 (Reuters) - The Canadian dollar firmed
slightly against its U.S. counterpart on Monday as European
economic and political uncertainty raised concerns about an
escalation of the euro zone debt crisis, increasing the safe
haven appeal of North American currencies.	
    Global stocks and the euro slumped as a Dutch political
impasse and disappointing euro zone data revived fears the
region's debt crisis could keep much of Europe mired in
recession through the year. 	
    Dutch Prime Minister Mark Rutte tendered his government's
resignation on Monday in a crisis over budget cuts. The
political turmoil in the Netherlands - traditionally one of the
euro zone's most stable members - added to uncertainties after
Socialist challenger Francois Hollande led President Nicolas
Sarkozy in the first round of French presidential elections.
    The yield spread between triple-A rated Dutch bonds and
German paper moved out to its widest in three years, while the
Italian debt yield spread also increased.	
    By comparison Canada's currency, supported by the country's
triple-A debt rating and stable political situation, remained
very attractive, said Don Mikolich, executive director of
foreign exchange sales at CIBC World Markets.	
    "We're looking like one of the safer places to be," Mikolich
    "Canada is benefiting because we've had such positive news
and (Bank of Canada Governor Mark) Carney on the potential for
the rate hikes at some point, so we're a little bit of an
aberration from any kind of flight to safety right now." 	
    The Canadian dollar firmed to C$0.9910 against the
greenback, or $1.0091, from Friday's finish at C$0.9926 against
the greenback, or $1.0075.	
    Last week the Bank of Canada kept its key lending rate on
hold for the 19th straight month but used more
hawkish-than-expected language, explicitly warning it may need
to start raising interest rates given reduced slack in the
    Carney will testify before a Canadian parliamentary
committee on Tuesday, with many market watchers expecting him to
reiterate the central bank's more positive outlook for the
    Canadian wholesale trade baffled expectations for a fall and
climbed 1.6 percent in February from the month before,
Statistics Canada said on Monday, signaling a strengthening in
gross domestic product data next week. 	
    The Canadian outlook contrasts with Europe, where data
showed German manufacturing unexpectedly shrank at its fastest
pace in nearly three years in April, accompanying a broader euro
zone contraction in manufacturing. 
    The developments overshadowed last week's Group of 20
gathering in which leading world economies pledged $430 billion
in new funding for the International Monetary Fund, more than
doubling its lending power in a bid to protect the global
economy from the euro-zone debt crisis. 	
    Canadian government bond prices were mostly higher with the
two-year bond up 4 Canadian cents to yield 1.332
percent. The benchmark 10-year bond climbed 30
Canadian cents to yield 2.028 percent.