CANADA FX DEBT-C$ slips as nervous investors keep heads down
* C$ at C$1.0212 to US$, or 97.92 U.S. cents * Investors wary that central banks might withdraw stimulus * Corporate buying of loonie mutes greenback gains By Alastair Sharp TORONTO, June 12 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Wednesday even as the greenback itself fell broadly on market anxiety that major central banks might tone down their stimulus programs. Signals from central banks, in particular the U.S. Federal Reserve and the Bank of Japan, that stimulus programs might be scaled back have pressured global equities, bonds and the U.S. dollar this week. "Central banks are still ruling the day, and what you're seeing here is growing pains in reaction to the eventual drawdown of Fed stimulus, or global stimulus, that's been happening for the last four years," said John Curran, senior vice president at CanadianForex. "We are following the general trend of the market movement, but to a lesser degree," he said, pointing to strong corporate buying of Canadian dollars that capped greenback strength against the Canadian currency. "At those levels of C$1.03-C$1.04 there are a lot of people happy to sell U.S. dollars," he said. The Canadian dollar ended the session at C$1.0212 to the greenback, or 97.92 U.S. cents, compared with C$1.0189, or 98.15 U.S. cents, at Tuesday's North American close. While fears of the end of stimulus have gripped markets, any economic recovery in the United States that would allow such moves would be broadly positive for the Canadian dollar in the longer term. "There is a positive implication from the U.S. recovery getting a bit more traction, but I think the proof will have to be in the pudding for Canadian data," said Greg Moore, a currency strategist at TD Securities. Canada produced a blockbuster jobs report last Friday that supported notions that the Bank of Canada may move more quickly than expected to hike its benchmark interest rate, which would be positive for the Canadian currency. Overnight index swaps, which trade based on expectations for the central bank's key policy rate, have risen recently as economic data has led some investors to bet on a rate hike sooner than previously expected. A Reuters poll on May 23 showed most economists don't expect the Bank of Canada to hike rates until the fourth quarter of 2014 due to tepid economic growth and low inflation. TD's Moore warned against reading too much into the strong showing from Friday's jobs figures, which have historically swung erratically and have a wide margin of error. "It is risky to put so much weight in such a volatile data series," he said. He warned the currency could pop back up to C$1.03 in a matter of days if the Fed signals the stimulus spigot will be tightened. Prices for Canadian government debt fell across the curve. The two-year bond was off 2 Canadian cents to yield 1.158 percent, while the benchmark 10-year bond fell 24 Canadian cents to yield 2.205 percent.
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