CANADA FX DEBT-C$ strengthens with equities, decade high vs euro

Tue Jun 8, 2010 4:47pm EDT
 
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 * C$ rises to 95.37 U.S. cents
 * Benefits as proxy for risk appetite
 * Hints at diversification away from USD, euro help
 * Canadian bonds prices sag as safe haven buying eases
 (Updates with additional analyst comment, close)
 By Claire Sibonney
 TORONTO, June 8 (Reuters) - Canada's dollar strengthened
against the greenback on Tuesday and reached multi-year highs
versus the euro as investors moved back into risk-sensitive
assets, including equities and commodities.
 With sentiment in financial markets improving during the
day, the Canadian dollar CAD=D4 at one point strengthened
more than one U.S. cent to C$1.0472, or 95.49 U.S. cents.
 Against the euro, it hit C$1.2507, or 79.96 euro cents, its
strongest level in almost a decade against the single
currency.
 "The Canadian dollar appears to have decoupled from the
sovereign debt concerns in Europe," said Michael O'Neill,
managing director at Knightsbridge Foreign Exchange, a
commercial foreign exchange dealer.
 "At this point in time the strong Canadian fundamentals are
trumping concerns over Europe."
 The move was supported by reassuring comments by Federal
Reserve Chairman Ben Bernanke on Monday that the U.S. economy
will likely avoid a "double-dip" recession and that European
leaders are committed to ensuring the survival of the euro.
[ID:nLDE65705B]
 European Union finance ministers on Tuesday said they must
do more to restrain spending and contain a debt crisis that
threatens to spread to countries that do not use the euro such
as Hungary and Britain. [ID:nLDE6570P8]
 But earlier, a report by Fitch Ratings that the UK faced a
"formidable" fiscal challenge put any real sense of stability
into question. [ID:nLDE6570YW]
 Risk-averse investors piled into gold, a key Canadian
export, sending prices for the precious metal to a record
dollar high amid fears that Europe's credit contagion could
hamper global economic growth. [GOL/]
  The Canadian dollar CAD=D4 closed the North American
session at C$1.0485 to the U.S. dollar, or 95.37 U.S. cents, up
from Monday's finish of C$1.0602 to the U.S. dollar, or 94.32
U.S. cents.
 "Canada's selling fatigue has set in and the market is
starting to look beyond the immediate euro issue and looking at
Canadian fundamentals longer term, suggesting that Canada can
go back through to parity," O'Neill added.
 He said a push below C$1.0380 could spur a move back toward
one-for-one footing with the U.S. dollar.
 Earlier, Camilla Sutton, a currency strategist at Scotia
Capital, suggested it appeared that central banks and big
institutional players may be buying the Canadian dollar, along
with other commodity-based currencies, to diversify their
holdings.
 CANADA BOND PRICES SAG
 With stock prices rising, Canadian bond prices edged lower
across the curve, mirroring U.S. Treasuries as investors
unwound some safe-haven holdings and prepared for this week's
$70 billion government bond supply. [US/]
 The two-year Canadian government bond CA2YT=RR was down
10 Canadian cents to yield 1.676 percent, while the 10-year
bond CA10YT=RR fell 25 Canadian cents to yield 3.322
percent.
 (Additional reporting by John McCrank; Editing by Jeffrey
Hodgson)