CANADA FX DEBT-C$ slips on negative German headlines

Wed Jul 18, 2012 8:21am EDT
 
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* C$ dips to C$1.0136 vs US$, or 98.66 U.S. cents
    * Bond prices climb across curve
    * German 2-yr bonds sell at negative yield for first time

    By Claire Sibonney
    TORONTO, July 18 (Reuters) - Canada's dollar eased from a
near two-week high against the U.S. dollar on Wednesday,
tracking the euro lower as Germany - considered Europe's safest
haven - sold bonds at a negative yield for the first time.
    The top-up auction of two-year bonds raised 4.173 billion
euros and follows short-term Treasury bill sales at negative
yields by Germany and other higher-rated euro zone states.
 
    Traders also cited a media report that quoted German
Chancellor Angela Merkel as saying she could not be sure the
European project would work.
    "I think that Germany issuing two-year bonds with a negative
yield for the first time and Merkel's comments certainly, in my
mind, underscore what's wrong in Europe and will weigh on the
euro," said Jack Spitz, managing director of foreign exchange at
National Bank Financial.
    "It's pushing the U.S. dollar higher and as it goes higher,
it goes higher against everything including the Canadian
dollar."
    Later in the day, markets will also be paying close
attention to the Bank of Canada's quarterly Monetary Policy
Report and press conference.
    The Bank of Canada left interest rates unchanged on Tuesday
but maintained its rate-hiking bias, the same day Federal
Reserve Chairman Ben Bernanke said the U.S. central bank stands
ready to take further steps to stimulate the economy.
  
    At 8:07 a.m. (1207 GMT), the Canadian dollar was at
C$1.0136 versus its U.S. counterpart, or 98.66 U.S. cents,
slightly weaker than Tuesday's North American session at
C$1.0126 against the greenback, or 98.76 U.S. cents.
    Spitz noted that the 200-day moving average was still
providing significant support for the U.S. dollar versus
Canada's around C$1.0109: "A close below the 200-day moving
average technically does set up dollar/Canada for a move lower
towards better support near parity."
    Canadian bond prices climbed across the curve amid the
broader risk-averse mood in markets.
    The two-year government bond rose 4 Canadian
cents to yield 0.957 percent, while the benchmark 10-year bond
 added 22 Canadian cents to yield at 1.618 percent.