CANADA FX DEBT-C$ nears 2-week low vs US$ but rallies on crosses

Thu Jul 12, 2012 8:29am EDT
 
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* C$ hits 2-week low vs US$, 2-year high vs euro
    * C$ at C$1.0237 vs US$, or 97.68 U.S. cents
    * Bond prices climb across curve

    By Claire Sibonney
    TORONTO, July 12 (Reuters) - Canada's dollar hit a near
two-week low against its U.S. counterpart on Thursday but
rallied to a two-year high versus the euro as concerns over the
global growth outlook sapped investor appetite for riskier
assets and currencies.
    A surprise rate cut in South Korea and a 50-basis point
reduction in Brazil underscored the widespread nature of the
current slowdown, even though the Bank of Japan bucked the
global trend and held off on further policy easing.
   
    Data showing an unexpected drop in Australian employment in
June also added to worries about world growth, increasing risk
aversion and causing the higher-yielding Australian dollar to
fall sharply, including a near two-week low against the Canadian
dollar. 
    "The  employment data in Australia which hit the Aussie ...
dragged all the other commodity currencies with it," said Adam
Cole, global head of FX strategy at RBC Capital Markets in
London.
    "And then the rate cut in Korea overnight as well I think
markets are reading as telling us not very good things about
global growth, Asian growth in particular and again, that's
pushing the risky currencies down as a block and CAD is really
just getting caught up in that."
    Disappointment over the prospects for any near-term response
by the U.S. Federal Reserve also weighed. Recent data showing
slower growth in Europe, China and the United States and a poor
start to the second quarter corporate earnings season had been
encouraging hopes of a policy response.
    However, the minutes of last month's Federal Reserve
meeting, published on Wednesday, showed the world's biggest
economy would have to weaken further before its central bank
took any more easing steps. 
    At 8:11 a.m. (1211 GMT), the Canadian dollar stood at
C$1.0237 versus the U.S. dollar, or 97.68 U.S. cents, slightly
weaker than Wednesday's North American session close at C$1.0199
versus the U.S. dollar, or 98.05 U.S. cents.
    Earlier, the domestic currency softened to as much as
C$1.0245, or 97.61 U.S. cents, its weakest level since June 29.
    The Canadian dollar's June 29 low around C$1.0342 against
the greenback was providing some support for the currency.
    The Canadian dollar still outperformed against other major
currencies including the euro on Thursday, rising to
C$1.2454, or 80.29 euro cents, its strongest level since June
2010.
    Dashed U.S. stimulus hopes helped the greenback broadly, and
that generally tends to help Canada outperform on the crosses,
noted Cole.
    Currency traders were also looking ahead to next week's rate
setting announcement by the Bank of Canada for further direction
on the Canadian dollar.
    A Reuters poll showed the Bank of Canada is expected to keep
interest rates on hold until the second quarter of 2013, as a
slowing global economy hurts the domestic outlook and as
Ottawa's new mortgage rules take pressure off the central bank
to cool the country's housing market. 
    Canadian bond prices climbed across the curve. The two-year
government bond added 4 Canadian cents to yield 0.973
percent, while the benchmark 10-year bond gained 39
Canadian cents to yield 1.641 percent.