CANADA FX-DEBT-C$ sinks as equities drop, investors seek safety

Thu Aug 4, 2011 12:39pm EDT
 
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   * C$ at C$0.9775 vs US$, or $1.0230
 * Equity markets retreat on economic woes
 * Bonds prices rise in flight to safety
 By Andrea Hopkins
 TORONTO, Aug 4 (Reuters) - The Canadian dollar dropped to
its lowest point against the greenback since July 11 on
Thursday, hit by a broad stock market selloff and worries about
the U.S. and global economic recovery.
 The yen tumbled after Japan intervened to curb its
strength, a move seen having a transitory impact as global
economic concerns keep demand for the safe-haven currency high.
Japan's move came one day after the Swiss National Bank
unexpectedly cut interest rates to cap a soaring Swiss franc.
[FRX/]
 The efforts by Japan and Switzerland to stem their
currencies' rise against the U.S. dollar helped the greenback
at least briefly, sending commodity-linked currencies like the
Canadian and Australian dollars sharply lower.
 Global stock markets also dropped, with North American
indexes off more than 2 percent at midday, as worried investors
took to the sidelines awaiting better economic news.
 "You're basically just in a fundamental risk-off frame of
mind right now. It's the events in Europe, it's the equity
markets catching up to the realization that earnings alone
can't get you over this hump, and that you really are in a
world where a lot more can go wrong than can go right," said
David Tulk, chief Canada macro strategist at TD Securities.
 "We're just seeing all the flight to quality right now into
the U.S. dollar at the expense of the Canadian dollar."
 The Canadian dollar dropped to a session low of C$0.9775
versus the U.S. dollar, or $1.0230, at midday, roughly a
three-week low. That was down from Wednesday's North American
session close at $0.9626 to the U.S. dollar, or $1.0389.
 Tulk pointed to near-term Canadian dollar support at around
C$0.98, near levels last seen at the end of June, but warned
the run by investors to safe havens may mean previous
assumptions about trading ranges may falter.
 "At this point, you're starting to get a little more
concern, just given that we're seeing this momentum take over.
A lot of those technical support levels may have a smaller role
to play," Tulk said.
 Canadian government bond prices were higher on the broad
flight to safety mood.
 The two-year bond CA2YT=RR was up 33.5 Canadian cents to
yield 1.084 percent, while the 10-year bond CA10YT=RR added
85 Canadian cents to yield 2.571 percent.
 (Editing by Rob Wilson)