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

Mon Jul 23, 2012 5:11pm EDT
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* Closes at C$1.0168 vs US$, or 98.35 U.S. cents
    * Hits 1-week low against US$; climbs to record high vs euro
    * Euro zone problems drive market moves
    * CNOOC bid for Nexen seen long-term supportive for C$
    * Bond prices advance; Canada outperforms Treasuries

    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.
    The latest flare-up in the European crisis overshadowed news
that state-controlled CNOOC Ltd launched China's
richest foreign takeover bid yet to buy Canadian oil producer
Nexen Inc, a deal that would typically help boost the
    Spanish bonds yields soared to their highest levels since 
the creation of the euro, hurt by fears other Spanish regions
could follow Valencia in requesting help from the central
government to keep it afloat. 
     "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
    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.
    "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.
    The Canadian dollar ended the North American
session at C$1.0168 to the greenback, or 98.35 U.S. cents, down
from C$1.0127 against the U.S. dollar or 98.75 U.S. cents.
    The Canadian dollar at one point hit C$1.0205, or 97.99 U.S.
cents, its softest level since July 13, tracking a selloff in
global equities and energy prices. 
    News of CNOOC's bid for Nexen was generally supportive of
the Canadian currency, even though the deal was priced in U.S.
    "I think the positive for CAD comes when Canadian-based
shareholders receive the U.S. dollars and transfer (them) 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 the other favorable drivers for
the Canadian dollar include 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 ... one of the problems that continues to afflict a
number of jurisdictions is the inability of politicians to
actually take decisions," added Stretch.
    Analysts said the 50-day moving average of C$1.0222 could
provide support for the Canadian dollar if it weakens further,
while the 200-day moving average of C$1.0108 might prove to be a
resistance level.
    Looking ahead to Tuesday, markets will be watching Canadian
retail sales data for May and HSBC's Chinese manufacturing
figures for July, which could both influence Canada's
resource-linked currency.  
    Canadian bond prices edged higher and outperformed U.S.
Treasuries across most of the curve. The two-year government
bond rose 5 Canadian cents to yield 0.93 percent,
while the benchmark 10-year bond gained 26 Canadian
cents to yield 1.585 percent.