CANADA FX DEBT-Canadian dollar slips lower on risk aversion

Mon May 17, 2010 5:09pm EDT
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   * C$ ends at 96.74 U.S. cents, rebounds from 1-week low
 * Bond prices lower across the curve
 (Updates to close, adds details, quotes)
 By Claire Sibonney
 TORONTO, May 17 (Reuters) - The Canadian dollar pared steep
losses against the U.S. currency on Monday, but still ended
slightly lower as global risk aversion continued to play out
over nagging worries about Europe's debt crisis.
  The euro also rallied from a four-year low versus the
greenback, helped by a turnaround in U.S. stocks, which
temporarily offset fears that euro zone austerity measures
could trigger a downturn in the region. [FRX/]
 "I think the market just needs to a get a little more
comfortable with what's transpired, plus the new valuation for
euro, plus what lies ahead for the euro zone itself," said
Camilla Sutton, currency strategist at Scotia Capital.
 Canadian Finance Minister Jim Flaherty said Europe was
following the right path to manage the debt crisis, and said
there were no signs the crisis was spreading beyond Greece,
Spain and Portugal. [ID:nSGE64G0G1]
 Also weighing on the commodity-linked currency, crude
prices fell below $70 a barrel, pushed down by concerns about
Europe's economy, the weak euro, swollen U.S. oil inventories
and worries that China's growth may be slowing [O/R]
 With no major economic announcements or key euro zone
developments to take direction from, Sutton said the market was
trying to stabilize.
 The Canadian dollar CAD=D4 closed the North American
session at C$1.0337 to the U.S. dollar, or 96.74 U.S. cents,
down from Friday's finish at C$1.0317 to the U.S. dollar, or
96.93 U.S. cents.
 Earlier, in the overnight session, the currency fell to its
lowest level in more than a week at C$1.0440 to the U.S.
dollar, or 95.79 U.S. cents, caught in the crossfire of euro
 "I think as we look ahead, Canada should still strengthen,"
Sutton said.
 "On a relative basis it's poised to do quite well. So we
would expect it to continue to strengthen once we get through
this spike in risk aversion."
 Sutton said key levels of support and resistance for the
currency rest between the 100-day moving average of C$1.0316 to
the U.S. dollar and the 200-day moving average of C$1.0494.
 Canadian government bond prices were lower across the curve
as investors awaited key retail sales and inflation data later
in the week.
 "We know the Bank of Canada is going (to raise interest
rates) in June or it's going in July. We know that the bank is
completely data-dependent at this point," said said Ian
Pollick, a portfolio strategist at TD Securities.
 "Those are the two real last pieces of information we need
... That will really give us a good sense of what the bank is
going to do."
 Bond prices tend to fall when interest rates go up as their
low-yielding fixed payments seem less lucrative compared with
rising yields on other investments.
 The two-year government bond CA2YT=RR dipped 11 Canadian
cents to C$99.25 to yield 1.877 percent, while the 10-year bond
<CA10YT=RR dropped 60 Canadian cents to C$99.95 to yield 3.506
 Canadian bonds lagged their U.S. counterparts with the
Canadian 10-year bond yield almost 2 basis basis points above
the U.S. 10-year yield, compared with 2.2 basis points below on
 "Today's just one of those days where we're seeing light
flows across the market. It's pretty much dead to be honest
with you," said Pollick.
 (Reporting by Claire Sibonney; editing by Rob Wilson)