CANADA FX DEBT-C$ hits 2-week low as oil, silver dive

Wed May 4, 2011 4:38pm EDT
 
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 * C$ ends down at C$0.9585 vs US$, or $1.0433
 * Bond prices track Treasuries higher
 * Canada 10-year bond auction sees solid demand
 (Updates to close, adds details, comments)
 By Claire Sibonney
 TORONTO, May 4 (Reuters) - Canada's commodity-linked
dollar fell to a two-week low against the U.S. dollar on
Wednesday, driven down by a slide in prices for oil and other
resources as investors feared some markets were overbought.
 The broad sell-off in commodities dragged equities sharply
lower as investor appetite for risk-taking shriveled due to
concerns about a slowdown in the Chinese economy as well as
disappointing U.S. economic data. [MKTS/GLOB]
 U.S. oil prices were also hit by inventory data showing a
larger-than-forecast increase in crude stockpiles, and slipped
below $109 a barrel. Silver had its third day of heavy losses.
[O/R] [GOL/]
 "We've seen a fairly significant slide in silver prices,
which perhaps may be consistent with investors starting to
unwind some of those sort of commodity-based positions," said
Jeremy Stretch, head of FX strategy at CIBC World Markets.
 The Canadian dollar's status as a North American play did
not help its performance as signs of weakness in the U.S.
economic recovery mounted. Reports on Wednesday showed a sharp
slowdown in the vast services sector in April and less hiring
by private companies. [ID:nN04209762]
  The weak U.S. data helped push up safe-haven U.S.
Treasuries, and Canadian government bonds with them, but
weighed on the greenback, which sank to three-year lows aganst
a basket of currencies. [US/] [FRX/]
  More key economic data -- April employment reports from
the United States and Canada -- will be released on Friday.
 ELECTION AFTERTHOUGHT
 The results of the Canadian general election on Monday,
which gave the business-friendly Conservatives a stable
majority government, initially pushed the Canadian dollar to a
near 3-1/2 year high. But so so far the election has had little
lasting impact on the market despite expectations it would
allow the Canadian dollar to catch up with gains made recently
by other commodity-supported currencies.
 "People were hoping for a catch-up based on the election.
That hasn't materialized, I believe it will in the near
future," said John Curran, senior vice president at
CanadianForex, a commercial foreign exchange dealing firm.
 The Canadian dollar CAD=D4 ended the North American
session at C$0.9585 to the U.S. dollar, or $1.0433, down from
C$0.9526 to the U.S. dollar, or $1.0498, at Tuesday's close.
 It touched its lowest level since April 19 during the day.
 After breaking through the 21-day moving average earlier in
the session, analysts said the next major support level for the
Canadian dollar is the 50-day moving average, around C$0.9675.
 10-YEAR AUCTION MET BY HUNGRY INVESTORS
 Canada's sale of 10-year government bonds met with healthy
appetite on Wednesday, helped by doubts about global growth and
investor confidence after the Conservatives won the first
majority government in almost seven years. [ID:nN04209510]
 "That's all despite the fact that the 10-year sector is not
exactly cheap," said Fergal Smith, managing market strategist
at Action Economics, noting that yields that far out the curve
trade well below their U.S. counterparts.
 The two-year bond CA2YT=RR was up 3 Canadian cents to
yield 1.684 percent, while the 10-year bond CA10YT=RR rallied
35 Canadian cents to yield 3.114 percent.
 (Editing by Peter Galloway)