CANADA FX DEBT-C$ slips ahead of European summit
* C$ ends at C$1.0255 vs US$, or 97.51 U.S. cents * Markets eye Europe summit Thursday and Friday * Underperforms Aussie, New Zealand dollars * TD Securities pushes back forecast for rate hike * Bonds edge higher across curve By Jennifer Kwan TORONTO, June 27 (Reuters) - Canada's dollar stumbled against its U.S. counterpart on Wednesday along with the euro as investor hopes faded that new measures from a European Union summit this week would resolve the region's debt crisis. European leaders remained unusually divided before the summit on Thursday and Friday over how to contain the bloc's spreading debt crisis, now in its third year. The euro fell for a third day against the U.S. dollar on Wednesday ahead of the summit. "It's not so much of a Canadian dollar story. It's just general market sentiment leading up to the summit," said David Tulk, chief Canada macro strategist at TD Securities. "There's two things we want to keep an eye on. One is the announcement of near-term tools to keep Italian and Spanish yields under control. The second is ... if we can get some softening on (German Chancellor Angela) Merkel's positioning with respect to adopting euro bonds or a pan-Europe banking regulation system or something along those lines." Merkel had said total debt liability would not be shared in her lifetime, giving little support to Italian and Spanish pleas for immediate action. Rome and Madrid have seen their borrowing costs spiral to a level which for Spain at least would not be sustainable. The Canadian currency ended at C$1.0255 to the greenback, or 97.51 U.S. cents, down slightly from its Tuesday finish at C$1.0240 to the greenback, or 97.66 U.S. cents. "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." On Wednesday, the Canadian dollar notched a mixed performance against major currencies. It underperformed the commodity-linked Australian and New Zealand dollars. Indeed, the uncertainty about the global economy has prompted TD Securities to push back its forecast on when the Bank of Canada will next hike rates. It now sees the first hike of 25 basis points in March 2013 from its previous call at the third quarter of this year. "The global outlook has deteriorated by more than what we had expected," said TD's Tulk. He added the surprise announcement by the federal government to clamp down on mortgage regulations "has removed the pressure from the Bank to hike this year." The government tightened conditions for both borrowers and lenders last week to put the brakes on home buying and deflate a possible housing bubble before it pops. The new rules and guidelines are expected to make it harder for home buyers and homeowners to take on massive debt. Canadian bond prices were largely higher across the curve with the two-year Canadian government bond up 4 Canadian cents to yield 0.994 percent, while the benchmark 10-year bond added 19 Canadian cents to yield 1.725 percent.
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