July 16, 2010 / 9:42 PM / 7 years ago

CANADA FX DEBT-C$ sideswiped by economic uncertainty

* C$ ends at 94.82 U.S. cents

* Touches lowest level since July 7

* Worries over recovery hit commodity currencies

* Bonds rally in safe-haven bid (Adds analyst comments, updates pricing)

By John McCrank and Jeffrey Hodgson

TORONTO, July 16 (Reuters) - Canada’s dollar suffered its biggest one-day loss this month against its U.S. counterpart on Friday as growing concerns about the strength of the global economic recovery hurt commodity-based currencies.

Canada is a major exporter of commodities such as oil, natural gas, copper and gold. About three-quarters of the country’s exports are absorbed by the United States.

A raft of recent U.S. economic data has come in weaker than market forecasters had predicted, stoking concerns that the health of the world’s No. 1 economy is taking a turn for the worse.

The negative news helped the euro touch a two-month high against the broadly weaker greenback on Friday.

“The Canadian dollar is getting completely sideswiped here,” said Firas Askari, head of foreign exchange trading at BMO Capital.

“We are being sold off with the U.S. dollar as the euro rallies, which is a break from risk-on/risk-off trade. What’s really going on here is they’re selling all the growth currencies such as Canada, Norway, Kiwi.”

The Canadian dollar CAD=D4 closed at C$1.0546 to the U.S. dollar, or 94.82 U.S. cents, down from Thursday’s close at C$1.0388 to the U.S. dollar, or 96.26 U.S. cents.

It was the Canadian dollar’s biggest one-day drop since June 29. It fell as low as C$1.0580, or 94.52 U.S. cents, its weakest level since July 7.

Fears about the global economic outlook were fueled by the Thomson Reuters/University of Michigan preliminary July consumer sentiment survey, which came in much weaker than forecast. [ID:nN16126985]

Data this week out of China also prompted concerns among market players that growth there is less robust than expected.

“We remain Canadian dollar bears because we think that the increased uncertainty about the U.S. and the Chinese recoveries will continue to weigh on sentiment and therefore your commodity-based currencies,” said Matthew Strauss, a senior currency strategist at RBC Capital Markets.

“The Canadian dollar is particularly vulnerable given that the focus currently is on the weakness coming out of the U.S.”

The next big Canadian-focused market event will be the Bank of Canada’s interest rate decision on Tuesday. Markets have largely priced in 0.25 percent increase in its key rate. BOCWATCH

Generally, that would stoke demand for the currency due to the possibility of higher returns, but that may not be the case this time, said Camilla Sutton, a currency strategist at Scotia Capital.

“Increasingly it’s expected that even though they’ll hike interest rates, the statement itself may be more dovish than the previous one, which could keep this downward pressure on Canada even into the interest rate hike.”

Canadian primary dealers and global forecasters surveyed by Reuters expect the bank will raise its key overnight interest rate next week by 25 basis points to 0.75 percent, though the pace of subsequent hikes is less clear. [CA/POLL]

BONDS RALLY

Canadian bond prices rallied along with U.S. Treasury issues as worried investors sought the safety of government debt.

Stocks in the U.S. and Canada were lower, with Toronto’s main stock index ending down 1.47 percent.

Canada’s two-year bond CA2YT=RR was up 21 Canadian cents to yield 1.56 percent, while the 10-year bond CA10YT=RR added 68 Canadian cents to yield 3.157 percent. (With additional reporting by Jennifer Kwan; editing by Rob Wilson)

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