November 16, 2010 / 10:04 PM / 7 years ago

CANADA FX DEBT-C$ sinks to near 3-week low as Ireland fears grow

* C$ hits session low of 97.51 U.S. cents

* Sinks along with commodity, equity prices

* Canadian bond prices higher across curve (Updates to close, adds details, commentary)

By Claire Sibonney

TORONTO, Nov 16 (Reuters) - Canada's dollar shed more than a cent against the greenback on Tuesday, hitting its lowest level in nearly three weeks, as commodity prices and equity markets slumped on fears Europe's debt crisis is worsening.

The currency CAD=D4 fell as low as C$1.0255 to the U.S. dollar, or 97.51 U.S. cents, its weakest level since Oct. 28.

The greenback also trounced the euro, which fell to a seven-week low amid anxiety about a deepening debt crisis in the euro zone -- the latest casualty being Ireland. Investors fear Europe's woes could hit global growth, which would hurt commodity demand and corporate profits.

"Fiscal issues in PIIGS (Portugal, Ireland, Italy, Greece, Spain) countries are not new but perhaps they were not on the front burner because it was all about QE2 the last two months," said Sebastien Lavoie, economist at Laurentian Bank of Canada, in Montreal.

"Everything we had though thought would have happened with QE2 is not," he said, referring to the U.S. dollar gaining against the euro and U.S. bond yields spiking after the U.S. Federal Reserve announced its second round of quantitative easing earlier this month.

Adding extra pressure on Canada's currency was a report showing manufacturing sales fell in September, as expected. Sales were pressured by weak auto production, a strong currency and sagging exports, which are all putting the brakes on economic growth. [ID:nN1699569]

The Canadian dollar was already an underperformer before the figures came out in the morning, but the data likely encouraged a little more selling, said Shaun Osborne, chief currency strategist at TD Securities.

The Canadian dollar CAD=D4 closed the North American session at C$1.0222 to the U.S. dollar, or 97.83 U.S. cents, down steeply from C$1.0089 to the U.S. dollar, or 99.12 U.S. cents, at Monday's close.

The session saw a break in a recent short-term range for the U.S. dollar versus the Canadian currency of around C$0.9980 to C$1.0160, with parity constituting a very strong support level for the greenback.

The next key barrier for the U.S. dollar against Canada is seen near the 100- and 200-day moving averages around C$1.03. Osborne said a break of that area could take the Canadian currency back to around C$1.0650.

"What we saw last week was very definitely another ramp-up in speculative risk positions, long Canadian dollar positions, which I would imagine ... would have been unwound over the course of the past couple days as the Canadian dollar has strengthened," he said.

Osborne added that talk of larger investors "starting to tidy up positions" and perhaps liquidating some riskier assets ahead of the year-end, may signal a new short-term trend.

With global risk aversion back in play and soft domestic data to digest, Canadian bond prices rebounded across the curve, as investors flocked to the safety of government debt.

The two-year bond CA2YT=RR rose 13 Canadian cents to yield 1.573 percent, while the 10-year bond CA10YT=RR jumped 50 Canadian cents to yield 3.085 percent. (Editing by Jeffrey Hodgson)

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