CANADA FX DEBT-C$ eases as worries over Fed outlook set in
* C$ slips to 96.35 U.S. cents
* Bonds prices extend gains
By Claire Sibonney
TORONTO, Aug 11 (Reuters) - The Canadian dollar extended its decline against the greenback on Wednesday morning as investors digested the Federal Reserve's pessimistic view of the U.S. economy, leading them to shed riskier assets.
In a move to reinvigorate a weakening economic recovery, the Fed said on Tuesday it would use cash from maturing mortgage bonds it holds to buy more government debt to help pin down borrowing costs. [ID:nN09275781]
The market decided the U.S. central bank's action was unlikely to have much immediate impact on the weak labor market and slow consumer spending, spurring investors to adopt a more risk averse position, bolstering the greenback against all major currencies excluding the yen. [FRX/]
"Things are not looking upbeat this morning for the Canadian dollar because we have the global risk backdrop (of) equities selling off, commodities under pressure, oil again below $80 a barrel, and the flipside of that is broad-based U.S. dollar strength as well," said Matthew Strauss, senior currency strategist at RBC Capital Markets.
Strauss also pointed to Chinese data on Wednesday showing slowing investment and factory output growth and Tuesday's softer-than-expected import figures as significant drivers behind the risk aversion theme.
At 7:57 a.m. (1157 GMT), the currency CAD=D4 was at C$1.0379 to the U.S. dollar, or 96.35 U.S. cents, down from Tuesday's finish at C$1.0323 to the U.S. dollar, or 96.87 U.S. cents.
In domestic economic data, currency players will also be watching Canada's trade balance figures for June.
The consensus calls for a deficit of C$0.3 billion but RBC expects a more dire figure of C$1 billion, as the energy component will start to reflect weaker crude oil prices while the automotive component is seen reversing some of the increase in May.
If the data disappoints, Strauss said that will add to the day's negative environment for the Canadian dollar.
"We could potentially see dollar/CAD pushing above C$1.04, which from a technical perspective would be an important break because it would move above the 200-day moving average, which is currently just under C$1.04 at C$1.0395," said Strauss.
"A close above that level would be a bullish technical signal for dollar/Canada to move even higher."
Canadian bond prices extended their gains across the curve a day after the Fed's announcement, tracking U.S. Treasuries higher, with the U.S. 2-year Treasury note yields hitting a record low. [US/]
The two-year bond CA2YT=RR edged up 4 Canadian cent to yield 1.421 percent, while the 10-year bond CA10YT=RR added 17 Canadian cents to yield 3.013 percent. (Reporting by Claire Sibonney; Editing by Theodore d'Afflisio)
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