CANADA FX DEBT-C$ weaker as nervous investors buy greenbacks
* Canadian dollar 0.1 percent lower versus greenback
* BoC governor sees greater risk of lower economic growth
* Short-end bond prices miss out on rally as auction looms
By John McCrank
TORONTO, Nov 19 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Wednesday as nervous investors parked their cash in safe-haven U.S. Treasuries, giving the greenback a boost.
Canadian bond prices were mixed, with the long end rallying on a safe haven bid and the short end weaker due to a larger than normal two-year bond auction coming later in the session.
At 9:40 a.m. (1440 GMT), the Canadian dollar was at C$1.2310 to the U.S. dollar, or 81.23 U.S. cents, down from C$1.2299 to the U.S. dollar, or 81.31 U.S. cents, at Tuesday's close.
The only currencies that are holding up well in the current economic malaise are the U.S. dollar and the Japanese yen.
That's because nervous investors are repatriating overseas investments, bringing the cash back home, with the biggest source of that capital being the the United States and the second biggest being Japan, said Shane Enright, currency strategist at CIBC World Markets.
Another factor contributing to U.S. dollar strength, and by default Canadian dollar weakness, is that as money is getting pulled out of equity markets, it has to be parked somewhere and right now the safe haven of choice is U.S. Treasuries.
"That is seen as the safest place to put your money, even though yields are incredibly low, and again, if you put your money in U.S. Treasuries, you have to buy U.S. dollars to do that," Enright said.
He said the Canadian dollar will likely remain soft into the medium term because the link between the U.S. dollar strength and equity weakness is not likely to go away any time soon.
Bank of Canada Governor Mark Carney said in a speech in London that the risk of lower economic growth and lower inflation in Canada are greater than they were just a month ago. See [ID:nN19284673]
Carney repeated that the central bank would likely have to cut its key interest rate further to keep Canada's export-reliant economy afloat as banking and auto woes reverberate around the world.
On the data front, Canada's composite leading indicator dropped 0.4 percent in October from September, pulled down by sharp declines in the stock market
Looking ahead, wholesale trade numbers for September are due on Thursday, while the October consumer price index report will be released on Friday.
Canadian bond prices were mixed, with longer-dated bonds benefiting from weakness in equity markets, which increased the safe-haven bid for government debt, said Mark Chandler, fixed income strategist at RBC Capital Markets.
He said the short end of the curve was not benefiting from the stock market weakness because there is a C$4 billion Canadian two-year bond auction due later in the session.
The Canadian overnight Libor rate LIBOR01was 2.5583 percent, down from 2.5666 percent on Tuesday.
Tuesday's CORRA rate CORRA= was 2.2302 percent, down slightly from 2.2370 percent on Friday. The Bank of Canada publishes the previous day's rate at around 9 a.m. daily.
The two-year bond fell 7 Canadian cents to C$101.56 to yield 1.961 percent. The 10-year bond rose 3 Canadian cents to C$105.68 to yield 3.541 percent.
The yield spread between the two-year and 10-year bond was 154 basis points, down from 163 at the previous close.
The 30-year bond added 15 Canadian cents to C$114.60 to yield 4.124 percent. In the United States, the 30-year Treasury yielded 4.074 percent. (Editing by Peter Galloway)
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