CANADA FX DEBT-C$ dips vs US$, rallies to all-time high vs euro

Mon Jul 23, 2012 3:11pm EDT
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* C$ hits session low of C$1.0205 vs US$, or 97.99 U.S.
    * C$ climbs to record high versus euro
    * Bond prices advance across the curve

    By Claire Sibonney
    TORONTO, July 23 (Reuters) - The Canadian dollar eased to a
more than one-week low against its U.S. counterpart but climbed
to an all-time high versus the euro on Monday as investors fled
riskier assets on fears that Spain will not be able to avoid a
costly sovereign bailout.
    Spanish bonds yields soared to their highest levels since 
the creation of the euro, despite euro zone finance ministers
approving on Friday of terms for a loan of up to 100 billion
euros for Madrid to recapitalize its banks. Analysts said this
was the prime driver of the euro's fall. 
    The euro hit a two-year low against the U.S. dollar and a
record trough versus Canada's currency at C$1.2277, or
81.45 euro cents. 
    "It just highlights what's going on with markets, which is
the euro is notably weak and most other currencies are reacting
to that," said Camilla Sutton, chief currency strategist at
    Murcia looked on course to become the second Spanish region
to request financial assistance from the government, after
Valencia, with media reports suggesting six regions could seek
    "Euro/CAD still looks attractive to sell because the
problems in the euro zone are much more deep-seated and
structural and symptomatic about broader uncertainties within
the whole ... single currency area," said Jeremy Stretch, head
of currency strategy at CIBC in London.
    Against the greenback, the Canadian dollar slipped
to a session low of C$1.0205, 97.99 U.S. cents, its softest
level since July 13, tracking a selloff in global equities and
oil prices in the absence of any major economic data.
    Looking ahead to Tuesday, markets will be watching Canadian
retail sales data for May and HSBC's Chinese manufacturing
figures for July for further direction in Canada's
resource-linked currency.  
    The Canadian dollar was outperforming other commodity-linked
currencies such as the Australian and New Zealand
dollars on Monday because of their closer ties to
China's economy, as investors braced for possible disappointment
ahead of Tuesday's HSBC PMI flash report.
    At 2:48 p.m. (1848 GMT), Canada's currency was at C$1.0172
versus its U.S. counterpart, or 98.31 U.S. cents, down from
Friday's North American session close of C$1.0127 against the
U.S. dollar, or 98.75 U.S. cents.
    News that state-controlled CNOOC Ltd launched
China's richest foreign takeover bid yet to buy Canadian oil
producer Nexen Inc for $15.1 billion was generally
supportive of the Canadian currency, even though the deal was
priced in U.S. dollars. 
    "I think the positive for CAD comes when Canadian-based
shareholders receive the U.S. dollars and transfer it back in,"
said Scotiabank's Sutton. 
    "The other ... positive for CAD comes on the general
psychological side where the thought is that Canadian assets are
attractive internationally."
    CIBC's Stretch pointed out other favorable drivers for the
Canadian dollar, including the tightening bias of the country's
central bank.
    Most Canadian primary dealers expect the Bank of Canada to
start raising interest rates again by mid-2013 even as its
struggling peers remain in easing mode. 
    "Also the relative fiscal position looks much more
attractive than elsewhere, there isn't any real political
uncertainty and I think that's one of the problems that
continues to afflict a number of jurisdictions is the inability
of politicians to actually take decisions," added Stretch.
    Analysts looked to the 200- and 50-day moving averages of
the U.S. dollar versus Canada's for significant support and
resistance at C$1.0108 and C$1.0222 respectively.
    Canadian bond prices edged higher across the curve,
outperforming U.S. Treasuries across most of the curve. The
two-year government bond rose 5 Canadian cents to
yield 0.931, while the benchmark 10-year bond CA2YT=RR gained 30
Canadian cents to yield 1.581 percent.