CANADA FX DEBT-C$ slides lower on global factory data

Wed Jun 1, 2011 11:36am EDT
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   * C$ slips to C$0.9728 per US$, or $1.0280
 * Bond prices rise
 * World factory growth slips, U.S. hiring weak
 (Adds details)
 By Ka Yan Ng
 TORONTO, June 1 (Reuters) - The Canadian dollar fell
against the U.S. currency on Wednesday, as soft manufacturing
data from the United States, Europe and Asia suggested a
weakening global recovery and prompted a flight from riskier
assets, hitting the commodity-linked currency.
 Data from the U.S. Institute for Supply Management showed
U.S. manufacturing in May grew at its slowest pace since
September 2009, tumbling more than expected to a reading of
53.5, from 60.4 the month before. The reading missed
economists' expectations for 57.7.
 The U.S. manufacturing numbers -- coupled with a private
sector employment report that came in well below expectations
-- added to early data that showed weakening factory growth in
Europe and Asia. [ID:nLDE7500VU] [ID:nLDE7501Y8]
 Purchasing managers indexes, measuring the activities of
thousands of factories across the world, sank to multi-month
lows in China and Europe, where even regional pacesetters
France and Germany showed signs of sagging.
 Driven by the gloomy outlook for growth and demand, riskier
assets such as equity and commodity markets went into retreat,
and the Canadian dollar was no exception. Government bond
prices, on the other hand, pushed higher in a move to safety.
 "Overall, people are taking a step back and taking a bit of
risk off the table," said Darren Richardson, corporate dealer
at CanadianForex.
 At 11 a.m. (1500 GMT), the Canadian dollar CAD=D4 was at
C$0.9728 to the U.S. dollar, or $1.0280, down from C$0.9686 to
the U.S. dollar, or $1.0324, at Tuesday's close.
 Investors were also assessing the landscape a day after the
Canadian currency zoomed to its highest level in more than a
week on the back of a Bank of Canada statement on Tuesday that
was more hawkish than expected. [ID:nN31112740]
 The bank's remarks sparked a move higher by the currency,
pushing it out of its recent tight C$0.9735-C$0.9817 range.
Jack Spitz, managing director of foreign exchange at National
Bank Financial, said C$0.9650, the 50-day moving average, now
represented initial decent U.S. dollar support.
 Canadian government bonds prices moved higher as the data
points grew more sour as the day wore on.
 Early on, prices were little changed, taking a breather
after a steep selloff in the previous session on changing
expectations on the outlook for Canadian interest rates.
 Overnight index swaps, which trade based on expectations
for the central bank interest rate, now show investors have
increased the likelihood of monetary policy tightening in
September, October and December.
 July 19, the next policy setting date, is seen as a remote
possibility for the central bank to resume raising interest
 Primary dealers, however, are far more convinced of rate
hikes this year than the swaps curve suggests. A Reuters survey
of dealers -- the institutions that deal directly with the
central bank as it carries out monetary policy -- found
September was the most likely starting point for the Bank of
Canada's next phase of rate increases. [CA/POLL]
 The two-year bond CA2YT=RR rose 10 Canadian cents to
yield 1.476 percent, while the 10-year bond CA10YT=RR jumped
57 Canadian cents to yield 3.011 percent.
 The Bank of Canada will auction C$700 million in 30-year
real return auctions later in the session.
 (Reporting by Ka Yan Ng; editing by Rob Wilson)