CANADA FX DEBT-C$ weakens as S&P revision adds to pressures

Mon Apr 18, 2011 5:31pm EDT
 
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 * C$ softens to C$0.9642, or $1.0371
 * Bond prices firmer across curve
 (Updates details, adds comments)
 By Solarina Ho
 TORONTO, April 18 (Reuters) - The Canadian dollar edged
lower against the greenback on Monday as a flurry of
uncertainty, including Standard & Poor's downward revision of
its U.S. outlook, sent investors scurrying for safety.
  Standard & Poor's maintained its top AAA rating for the
United States, but revised the country's credit outlook, saying
officials have not clarified how the country's long-term fiscal
pressures will be handled. [ID:nN18195555]
 "That's attracting risk-off activity into the marketplace.
Ironically, but unsurprisingly, a bit to the U.S. dollar
itself," said Jack Spitz, managing director of foreign exchange
at National Bank Financial.
 "The market is still comfortable in buying the U.S. dollar,
but not as a result of stronger U.S. fundamentals. It's an
entirely risk-off, safe-haven environment ... that's happening
across the board as equities melt away and commodities are
being sold off, with the exception of gold."
 The Canadian dollar was also buffeted by retreating crude
prices and worries over euro debt and the possibility of a
slowdown in the Chinese economy.
 The currency CAD=D4 finished the session at C$0.9642 to
the U.S. dollar, or $1.0371, down from Friday's finish of
C$0.9601 to the U.S. dollar, or $1.0416.
 China's move to increase banks' reserve requirements -- the
seventh such tightening since October -- signaled Beijing's
determination to stamp out inflation. [ID:nL3E7FG019]
 "On China, timing's always a bit of an issue, but nobody at
all is surprised by the trend of tightening," said Mark
Chandler, the head of Canadian fixed income and currency
strategy at RBC Capital markets.
 A Greek newspaper report saying the government wanted to
start debt restructuring talks, even though a Greek government
source denied the report added to the pressure on the market.
[ID:n ATH006025] [ID:nN18216539]
 The rise of a euro-skeptic party in Finnish elections was
seen as an extra hurdle to solving the euro zone's debt
problems.
 Also weighing on Canada's resource-heavy currency was a
slump in U.S. crude to below $108 a barrel. The slide came
after a cut in output from the world's top exporter, Saudi
Arabia, raised concern that high prices were hurting demand.
[O/R]
 International securities transactions in Canada for
February came in weaker than expected and showed a surprisingly
sharp reduction in the flow recently seen in Canadian bonds,
Chandler said. [ID:nN18218776]
 "At the margin, that was negative for the Canadian dollar,
but to be fair, it was basically the U.S. move that drove
everything," Chandler said.
 The market will be looking ahead to March inflation figures
on Tuesday, but with the Bank of Canada signaling earlier this
month its intent to keep interest rates on hold, and its next
rate decision not due until May, analysts do not expect the
data to have much impact.
 A shortened holiday week is also expected to keep trading
thin. The market will be closed on Friday for the Easter
holiday.
 Canadian bond prices edged higher across the curve,
outperforming the U.S Treasury. [US/]
 "The belly of Canada's curve did quite well," Chandler
said. "Not much in the way of Canadian data driving this, but
at the longer end of the market, there's relative preference
for Canada over the U.S."
 The two-year bond CA2YT=RR was up 7 Canadian cents to
yield 1.707 percent, while the 10-year bond CA10YT=RR gained
42 Canadian cents to yield 3.252 percent.
 (Editing by Peter Galloway)