CANADA FX DEBT-C$ slumps to 5-week low as Greece fears bite

Tue May 4, 2010 4:40pm EDT
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 * Touches low of C$1.0258 to the US$, or 97.48 U.S. cents
 * Oil prices drop below $83 a barrel
 * Bonds rise as investors flock to safe havens
 (Updates to closer, adds details, quotes)
 By Claire Sibonney
 TORONTO, May 4 (Reuters) - The Canadian dollar sank to its
lowest level against its U.S. counterpart in five weeks on
Tuesday as worries about the Greek aid package intensified,
rattling oil and equity markets.
 The Canadian currency fell almost 1-1/2 U.S. cents to touch
a low of C$1.0258 to the U.S. dollar, or 97.48 U.S. cents
minutes after the official Bank of Canada close, its weakest
level since March 29, as equity markets around the world were
hammered by investor skepticism that a weekend agreement among
European countries and the International Monetary Fund to bail
Greece out of its debt problems would succeed. [MKTS/GLOB] [.N]
  Concern about debt woes in the euro zone drove investors
to the safety of the greenback, which in turn pressured oil and
metals prices. [O/R] [GOL/]
  U.S. crude futures dropped $3.45, or 4 percent, to settle
below $83 a barrel, while gold tumbled after hitting five-month
highs above $1,190 earlier in the day.
 "It's contributing to a strong flight to safety and to U.S.
Treasury markets and a downturn in commodity prices, both of
which weigh against the Canadian dollar," said Sal Guatieri,
senior economist at BMO Capital Markets.
  The euro hit a one-year low against the greenback on
Tuesday on fears that Greece's woes would spread to other
vulnerable euro zone countries. [FRX/]
 "They're worried that Europe's economy will come to a
screeching halt and drag down global commodities," Guatieri
 The Canadian dollar CAD=D4 closed the North American
session at C$1.0250 to the U.S. dollar, or 97.56 U.S. cents,
down from Monday's North American finish at C$1.0106 to the
U.S. dollar, or 98.95 U.S. cents.
  Significant risk aversion started overnight and flowed
into the North American session, said Matthew Strauss, senior
currency strategist at RBC Capital Markets.
 "It's broad-based risk version mostly driven by increased
contagion fears in Europe," Strauss said.
 He added that market watchers will be looking at key
technical levels, with "trend line resistance coming in at
 "A daily close above that level could indicate a sentiment
change towards the Canadian dollar and could open the way for a
further rally in dollar/Canada," Strauss said.
 Guatieri said that until markets become more comfortable
with the European credit situation, it may take a while for the
Canadian dollar get back to parity.
 "We'll see how the situation plays out in coming weeks but
for the moment it's a major headwind for the Canadian dollar."
 Canadian bond prices moved higher across the curve,
following a rise in U.S. Treasuries fueled by safe-haven demand
for government debt. [US/]
 The concerns about Europe and contagion fears could result
in a slower global recovery than is priced in the market,
Strauss said. "If that's the case, it could actually put a
damper on central bank tightening or normalizing interest
 The two-year Canadian government bond CA2YT=RR climbed 22
Canadian cents to C$99.545 to yield 1.753 percent, while the
10-year bond CA10YT=RR shot up 64 Canadian cents to C$99.500
to yield 3.560 percent.
 (Additional reporting by Jennifer Kwan; editing by Peter