CANADA FX DEBT-C$ drops as Europe debt fears boost greenback

Mon Feb 8, 2010 5:22pm EST
 
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   * C$ lower at 93.07 U.S. cents
   * Bond prices edge higher
 By Claire Sibonney
 TORONTO, Feb 8 (Reuters) - Investor anxiety over European
credit woes pulled the Canadian dollar lower against its U.S.
counterpart on Monday, with the greenback benefiting from
safe-haven buying.
  "Basically the weakness in the Canadian dollar is really
just the flip-side of that, the strength we're seeing in the
U.S. dollar and concerns over global sovereign risk," said Doug
Porter, deputy chief economist at BMO Capital Markets.
 "I think it is a little ironic given that Canada does have
some of the soundest fiscal fundamentals out there but
nonetheless it seems that investors are continuing to gravitate
towards the U.S. dollar," he said.
 Overnight, the Canadian currency hit a session high of
C$1.0657, or 93.84 U.S. cents, as appetite for risk was spurred
by comments by U.S. Treasury Secretary Timothy Geithner that
the danger the U.S. economy will slip back into recession is
lower now than at any time in the past year. [ID:nN06139564]
 But gains were pared by disappointment that the weekend
Group of Seven meeting did not lead to concrete action to
tackle the sovereign debt problems of Greece, Portugal and
Spain. [ID:nLDE6171HK]
 Porter added that the debt contagion may be spreading to
more important European nations and maybe even to some larger
countries beyond Europe that have large budget deficits and
heavy debt.
 "It's going to take a lot of effort and a lot of time to
rein in these budget deficits," he said.
 "It's not something that an official statement or a change
in policy can really soothe investors quickly."
 The Canadian dollar finished at C$1.0745 to the U.S.
dollar, or 93.07 U.S. cents, down from Friday's close of
C$1.0700, or 93.46 U.S. cents.
 Canada's commodity-linked currency did not seem to benefit
from an uptick in oil prices, which rose nearly 1 percent after
three sessions of losses. [O/R]
 BONDGS EDGE HIGHER
 Most Canadian bond prices were slightly higher, benefiting
from the flight to safety that pulled stock markets lower on
Monday.
 U.S. Treasury debt prices, however, fell ahead of new
supply, although losses were limited as worries persisted over
the soundness of some European countries' debt.
 "It's a relatively small difference but perhaps some of
these concerns over sovereign risk are actually seeping in the
longer end of the U.S. Treasury market, because the U.S. does
have a bit of a serious budget deficit issue itself to deal
with," Porter said.
 The two-year bond CA2YT=RR rose 1 Canadian cent to
C$100.505 to yield 1.250 percent, while the 10-year bond
CA10YT=RR was up Canadian cents at C$103.190 to yield 3.348
percent.
 (Reporting by Claire Sibonney; Editing by Peter Galloway)