CANADA FX DEBT-C$ slips ahead of European summit

Wed Jun 27, 2012 9:17am EDT
 
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* Currency at 97.47 U.S. cents
    * Markets eye Europe summit Thursday and Friday
    * Bonds climb across curve

    By Jennifer Kwan
    TORONTO, June 27 (Reuters) - Canada's dollar slipped against
its U.S. counterpart on Wednesday as investor hopes faded that
new measures from a high-stakes European summit this week would
resolve the region's  debt crisis.
    European leaders sound unusually divided before the summit,
with Germany's Angela Merkel saying total debt liability would
not be shared in her lifetime and giving little support to
Italian and Spanish pleas for immediate crisis action.
  
    "We don't expect much from the summit. Actually you can see
there is a lot of divergence between Germany and other European
leaders. It's not looking like we're going to get a new pact
from there," said Hendrix Vachon, senior economist at Desjardins
Group.
    "So the uncertainties are still there after the summit. In
that situation, it will be a bad climate for currencies except
for the U.S. dollar."
    At around 9:00 a.m. (1300 GMT), the Canadian currency
 was at C$1.0260 to the greenback, or 97.47 U.S. cents,
down slightly from its Tuesday finish at C$1.0240 to the
greenback, or 97.66 U.S. cents.
    The euro fell for a third day against the dollar on
Wednesday after hitting a two-week low in the prior session, and
analysts cautioned more losses were likely ahead of the European
summit that is not expected to deliver new measures to ease the
region's debt crisis. 
    The Canadian dollar has had a bumpy ride so far this year,
swinging from its high above parity with the greenback at $1.02
in April to its low below 96 U.S. cents a few weeks ago.
    Some analysts expect an even sharper depreciation, though
the currency is down less than 1 percent year to date. In a
research note on Tuesday, Capital Economics predicted the
Canadian dollar will weaken to 92 U.S. cents by the end of this
year and 86 U.S. cents by the end of 2013.
    The research firm said the forecast was based partly on the
prospect of further declines in commodity prices.
    Canadian bond prices were higher across the curve with the
two-year Canadian government bond up 2 Canadian cents
to yield 1.001 percent, while the benchmark 10-year bond
 gained 14 Canadian cents to yield 1.730 percent.