CANADA FX DEBT-C$ hits 3-month low on oil, Europe fears

Thu Feb 4, 2010 4:59pm EST
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 * C$ falls to 93.22 U.S. cents
 * Bonds higher on U.S. jobless data, euro zone debt
 By Claire Sibonney
 TORONTO, Feb 4 (Reuters) - The Canadian dollar slumped to
its lowest level in nearly three months on Thursday as oil
prices plunged and fresh credit worries in the euro zone hit
investors' appetite for riskier assets.
 Worries over the financial health of Portugal and Spain
have increased on speculation the two countries may face
similar problems over their budget deficits and debt as Greece.
 These concerns, along with a less-than-stellar U.S. jobless
claims report, helped lift the safe-haven U.S. dollar to an
eight-month high versus the euro. [FRX/]
 "I think the bottom line is the market is in risk-aversion
mode and that generally benefits the U.S. dollar but we've also
seen the fact that it looks like Europe is in a lot of
trouble," said Steve Butler, director of foreign exchange
trading at Scotia Capital.
 A stronger greenback also cut investor appetite for oil,
which sank 5 percent, the steepest one-day drop since July, and
gold, which tumbled to a three-month low. [O/R] [GOL/]
 "If you look at most of the other commodity currencies the
Canadian dollar has been doing quite well, I think, and I'm not
surprised to see a weakening off because we have seen the
commodity market really start to melt," said Butler, referring
to the New Zealand and Australian dollars, which also hit
multi-month lows. NZD=AUD=
 Looking forward to Friday's U.S. and Canadian jobs reports,
market players expect good news, but it may not be sufficient
to boost the Canadian currency against its U.S. counterpart.
 "We might have an upside surprise in nonfarm payrolls but
people won't care because they'll be hitting the sell button,"
said David Watt, senior currency strategist at RBC Capital
 Butler added that strong U.S. employment data will only
boost the U.S. dollar, while positive domestic numbers may only
have a fleeting effect.
 "It may give us a temporary lift but I think when the
market starts to focus on what's happening with commodities and
what's happening with risk aversion I think that will weigh a
lot more," he said.
 Similarly, Bank of Canada Governor Mark Carney's speech on
to the Winnipeg Chamber of Commerce reinforced the view that
interest rates will stay on hold until at least July, which
would also contribute to tempering the Canadian dollar's
 The Canadian dollar finished the North American session on
Thursday at C$1.0727, or 93.22 U.S. cents. On Wednesday, it
closed at C$1.0624, or 94.13 U.S. cents.
 It hit a low of C$1.0753, or 93 U.S. cents, during the
session, the lowest level since Nov 9.
 As global and domestic equities slid, Canadian government
debt added to gains due to persistent fears over European
sovereign risk.
 Also pushing up the market was a surprise increase in U.S.
weekly jobless claims, which pointed to a labor market still
under stress even as the U.S. economy grows. [ID:nN03175869]
 The two-year bond CA2YT=RR was up 14.5 Canadian cents at
C$100.45 to yield 1.277 percent, while the 10-year bond
CA10YT=RR gained 55 Canadian cents to C$103.100 to yield
3.359 percent.
 (Reporting by Claire Sibonney; editing by Peter Galloway)