CANADA FX DEBT-C$ hits 6-week low on risk aversion
* 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 Securities.
"Generally, risk aversion is I think the order of the day again," he added, noting a similar slide in oil prices and equities.
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. [US/]
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 percent.
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