CANADA FX DEBT-C$ drops below 96 U.S. cents on euro zone fears
* 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 said.
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 [CAD/POLL]
INVESTORS FLOCK TO BONDS
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 percent. (Reporting by Jennifer Kwan; editing by Rob Wilson)
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