CANADA FX DEBT-C$ drops below 96 U.S. cents on euro zone fears

Thu May 6, 2010 1:09pm EDT
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   * Low of C$1.0470 to the US$, or 95.51 U.S. cents
 * Oil prices tumble below $80 a barrel
 * Bonds gain as risk-averse investors seek safety
 (Updates to midday, adds quotes)
 By Jennifer Kwan
 TORONTO, May 6 (Reuters) - Canada's dollar fell against the
greenback on Thursday to touch a nine-week low below 96 U.S.
cents on worries the Greek debt crisis may spread to other
euro-zone countries and threaten economic recovery.
 The Canadian dollar tumbled to C$1.0470 to the U.S. dollar,
or 95.51 U.S. cents, its weakest level since March 1, as
escalating fears over Greece's crisis rattled global equities
and sent the euro sharply lower. [MKTS/GLOB] [FRX/] [.N]
 "The higher levels of risk aversion have continued to
increase as today has progressed, and that's had a significant
impact in terms of boosting the U.S. dollar," said George
Davis, chief technical strategist at RBC Capital Markets.
 As well, the recent spurt of selling late on Thursday
morning was due to "very significant stop-loss order flow going
through on the yen crosses so we've seen a huge selloff in
CAD/yen," he said.
 "What you've had is a lot of people have been playing the
Canadian dollar from a bullish perspective, not only against
the U.S. dollar but from the crosses as well over the last
couple of months," said Davis.
 "With the risk aversion backdrop really starting to have a
negative impact here, what we're seeing is those long positions
are slowly being weeded out of the market."
 At 12:31 p.m. (1631 GMT), the Canadian dollar CAD=D4 was
at C$1.0421 to the U.S. dollar, or 95.96 U.S. cents, down more
than a U.S. cent from Wednesday's finish at C$1.0297 to the
U.S. dollar, or 97.12 U.S. cents.
 The price of oil, a key Canadian export, was also battered
by debt contagion fears and a flight to safety in the U.S.
dollar. Crude fell below $80 a barrel as the euro zone woes
sparked uncertainty over economic recovery and global energy
demand. [O/R]
 Davis said the next significant technical level for the
Canadian currency is the 200-day moving average of C$1.0509 to
the U.S. dollar.
 "People tend to look at the 200-day moving average as
signifying longer-term market sentiment in terms of trends," he
 Davis said if risk aversion pushes the Canadian currency
above C$1.0509 to the U.S. dollar that would suggest the
Canadian dollar could weaken further.
 Despite the influence of powerful external factors, a
Reuters poll released on Wednesday forecast the Canadian dollar
will remain near parity with the greenback for at least the
next six months, but will weaken off a year from now
 Canadian government bond prices were higher across the
curve on Thursday on the "intensification of the whole
contagion theme," said Davis.
 "Now it's certainly not just a Greek problem. People are
starting to worry that we could see a more significant spread
of sovereign risk to other countries such as Portugal and
Spain," he said.
 "People in general are just parking their money in fixed
income instruments right now, playing the safety angle more
than anything else until this uncertainty starts to abate."
 The two-year government bond CA2YT=RR climbed 10 Canadian
cents to C$99.36 to yield 1.820 percent, while the 10-year bond
CA10YT=RR rose 58 Canadian cents to C$100.23 to yield 3.473
 (Reporting by Jennifer Kwan; editing by Rob Wilson)