CANADA FX DEBT-C$ nears 1-mth low as risk appetite wanes

Tue Feb 17, 2009 4:27pm EST
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 * C$ skids to 78.89 U.S. cents, lowest level since Jan. 22
 * Risk appetite dips on fears of prolonged global slowdown
 * Bond prices rebound as Monday's weak data sets tone
 (Recasts with comments and closing numbers)
 By Frank Pingue
 TORONTO, Feb 17 (Reuters) - The Canadian dollar fell 1.6
percent on Tuesday and touched its lowest level in nearly a
month as concerns about a deepening global recession curbed
appetite for risk and boosted the low-yielding greenback.
 The skid in the Canadian dollar came alongside a tumble in
North American stocks after warnings from two ratings agencies
sparked fear that a deep recession in Eastern Europe would
cause further damage to euro zone banks.
 "It's just concern that the end is not in sight, and even
though there is a lot of hope, I get the feeling the market is
very concerned that things are going to get worse," said Steve
Butler, director of foreign exchange at Scotia Capital. "The
market is really starting to turtle a bit."
 Standard & Poor's said on Tuesday it may review ratings on
banks in emerging Europe as the credit crisis limits Western
European banks' ability to supply funding to their subsidiary
banks in the region. The news followed a similar announcement
from Moody's Investors Service. [ID:nLG25344]
 The aversion to risk that followed the reports rattled the
Canadian currency and gave a lift to prices for Canadian bonds,
which are considered safe-haven investments.
 The Canadian dollar closed at C$1.2637 to the U.S. dollar,
or 79.13 U.S. cents, down from Monday's close of C$1.2438 to
the U.S. dollar, or 80.40 U.S. cents.
 Early in the North American session, the Canadian currency
fell to C$1.2675, or 78.89 U.S. cents, its weakest level versus
the greenback since Jan. 22.
 Another drag on the commodity-linked Canadian dollar was a
fall in oil prices, which dropped more than 7 percent as grim
economic indicators from across the globe raised concerns about
slumping demand for oil, a key Canadian export.
 Data from Japan, a key oil consumer, showed it suffered a
sharper contraction than other major economies in the fourth
quarter, while a U.S. manufacturing report signaled the
recession is worsening.
 The fresh wave of weak economic data and bearish reports
helped to boost the greenback, which is currently perceived by
traders as a safe-haven currency. It rallied to a 10-week high
versus the euro in the latest session.
 Canadian bond prices ended comfortably higher across the
curve as dealers dumped riskier equities and raced into safer
assets following the agency warnings about banks.
 Also helping prices bounce back from Friday's selloff were
dealers who played catch up as economic data released on
Monday, when the bond market was closed for a holiday, showed
factory sales in Canada had a record plunge in December.
 The data showed manufacturing shipments dropped a record 8
percent from November, the fifth consecutive month-on-month
decrease. The drop was far steeper than the 5.3 percent fall
predicted by analysts.
 The bond market rose due to "concerns about the health of
the financial sector ... and ongoing concerns that the global
recession is deepening," said Sal Guatieri, senior economist at
BMO Capital Markets. "And the Canadian manufacturing didn't
 Toronto's key stock index skidded 3.45 percent, while the
Dow Jones industrial average fell 3.79 percent.
 Canada economic data calendar will pick up on Wednesday
with the January wholesale trade report, followed by the
January composite leading indicators on Thursday. But Friday's
consumer price index data for January will likely attract the
most attention.
 The interest-rate sensitive two-year bond rose 4 Canadian
cents to C$102.77 to yield 1.174 percent, while the 10-year
bond jumped C$1.10 to C$110.60 to yield 2.819 percent.
 The 30-year bond rallied C$2.47 to C$125.62 to yield 3.556
 Canadian bonds underperformed U.S. Treasuries across most
of the curve. The Canadian 30-year bond yield was about 8.20
basis points above its U.S. counterpart, compared with 0.40
basis points on Friday.