CANADA FX DEBT-C$ hits 6-week low on risk aversion

Fri May 13, 2011 1:24pm EDT
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 * C$ falls as low as C$0.9745 per US$, or $1.0262
 * Bond prices firm on flight to safety
 (Updates to afternoon)
 By Claire Sibonney
 TORONTO, May 13 (Reuters) - Canada's dollar hit its weakest
level against the greenback in more than six weeks  on Friday,
tracking a selloff in the euro and retreating oil prices and
North American stocks, as economic worries mounted.
 The euro, a recent barometer of risk appetite, surrendered
all gains to fall to session lows after European Central Bank
President Jean-Claude Trichet spooked investors ahead of a
meeting of Eurogroup finance officials.  [FRX/]
 In an interview on Spanish television, Trichet said that
euro zone inflation was at a peak and the central bank would do
everything necessary to deliver price stability.
 "The euro today suggests that the underlying trend here is
still quite weak and I think more opportunity, more potential
for risk aversion perhaps and general (U.S.) dollar strength to
put a bit more pressure on the Canadian dollar going forward,"
said Shaun Osborne, chief currency strategist at TD
 "Generally, risk aversion is I think the order of the day
again," he added, noting a similar slide in oil prices and
 Oil prices slipped back below $98 a barrel, dragged from
earlier gains on news that Libyan leader Muammar Gaddafi may
have been wounded. [O/R]
 Energy markets have been on a roller-coaster ride
over the last week as investors have reassessed the outlook for
global growth and the risk of supply disruptions in the Middle
East and North Africa.
 Meanwhile, U.S. stocks extended losses after data showed
U.S. inflation raced to a 2-1/2-year high in April as food and
gasoline prices rose, making investors cautious. [.N]
 "Investors realize that if commodity-driven inflation
continues to increase it will have a meaningful negative impact
on the U.S. economy," said Sal Guatieri, senior economist at
BMO Capital Markets.
 At 1:09 p.m. (1709 GMT), the Canadian dollar CAD=D4 stood
at C$0.9700 to the U.S. dollar, or $1.0309, down from
Thursday's North American session close at C$0.9623 to the U.S.
dollar, or $1.0395.
 Earlier, the currency broke through technical support
levels around C$0.9720 and fell as low as C$0.9745 versus the
greenback, or $1.0262, its weakest level since March 30.
 "We're still in an environment where, fundamentally, the
Canadian dollar can probably outperform on the crosses because
the situation here in Canada is still quite constructive," said
TD's Osborne.
 "The data has been giving us some positive surprises. We
know the economy is doing quite well, we expect the Bank of
Canada to tighten down the road, but a lot of those factors I
think are priced in here."
 The currency, which was hovering near 3-1/2-year highs
against the greenback last week, has been caught up in the
recent commodity rout. The Canadian dollar often tracks general
risk appetite and commodity prices, and typically is closely
correlated with U.S. oil CLc1 because Canada is the major
exporter of oil and gas to the United States.
 Canadian bond prices firmed, tracking the rise in
safe-haven U.S. Treasuries after the spike in risk aversion.
 Canada's two-year bond CA2YT=RR was up 3 Canadian cents
to yield 1.691 percent, while the 10-year bond CA10YT=RR
gained 43 Canadian cents to yield 3.186 percent. The 30-year
bond CA30YT=RR advanced 73 Canadian cents to yield 3.588