CANADA FX DEBT-C$ slips as Portugal downgrade drags

Tue Jul 5, 2011 5:19pm EDT
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* C$ slips to C$0.9632 to U.S. dollar, or $1.0382

* Canadian bonds mostly higher

By Solarina Ho

TORONTO, July 5 (Reuters) - The Canadian dollar slipped for a second session against the U.S. dollar on Tuesday after a major ratings agency downgraded Portugal and as soft euro zone data and worries about China left investors cautious.

Moody's Investors Service cut Portugal's credit rating by four levels into junk territory, saying there was great risk the country would need a second round of financing before it could return to capital markets. The news added to lingering worries about Greece even as Athens narrowly averted a default.

Adding to the bad news from Europe, growth in the euro zone's dominant services sector slowed to its weakest pace since October, while euro zone retail sales data was also below expectations. [nL6E7I408N]

Media reports about a possible rate rise in China and a Moody's report saying the scale of problem loans at local governments in the country may be much bigger than previously thought further spoiled risk appetite. [nL3E7I507Y]

"A slight risk aversion helped the U.S. dollar, that's why we're down vs. the U.S. dollar," said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets. "It's not a strong risk-on or risk-off theme -- not as strong as what we've seen over the last month."

The currency CAD=D4 finished at C$0.9632 to the U.S. dollar, or $1.0382, down from Monday's North American session close of C$0.9608 versus the U.S. dollar, or $1.0408. The currency strengthened to as high as C$0.9594 against the U.S. dollar earlier in the day.   Continued...