CANADA FX DEBT-C$ weakens on debt fears; Bank of Canada eyed

Mon Jul 18, 2011 4:35pm EDT
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* C$ falls to C$0.9589 to the U.S. dollar, or $1.0429

* Bonds prices mostly higher

* Bank of Canada interest rate announcement Tuesday (Updates to close)

By John McCrank

TORONTO, July 18 (Reuters) - Canada's dollar weakened against its U.S. counterpart on Monday as fears of sovereign debt default in Europe and the United States undercut commodity prices and the market awaited an interest rate announcement by the Bank of Canada on Tuesday.

Equity markets also slumped as investors shied away from risky trades, helping give a boost to Canadian government bond prices, which were mostly higher.

The Canadian dollar is associated with risky assets because of Canada's heavy reliance on commodity exports for economic growth.

"We've come into the week with continued worries about where the situation in Europe is headed as well as the risks of a credit rating downgrade in the U.S., which is playing negative for risk trades and the Canadian dollar," said Avery Shenfeld, chief economist at CIBC.

The Reuters-Jeffries CRB index, a global commodities benchmark made up of a basket of 19 commodities, fell 0.72 percent.   Continued...