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

Thu Aug 4, 2011 4:44pm EDT
 
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   * C$ ends at C$0.9795 vs US$, or $1.0209
 * Reaches weakest level since June 29
 * Biggest intraday drop since Japan nuclear crisis
 * Equity markets retreat on economic woes
 * Bonds prices rise in flight to safety
 By Andrea Hopkins
 TORONTO, Aug 4 (Reuters) - The Canadian dollar tumbled
nearly 2 U.S. cents to hit a five-week low against the
greenback on Thursday, hurt by a broad stock market sell-off
and worries about the U.S. and global economic recovery.
 Efforts by Japan and Switzerland in recent days to stem
their currencies' rise against the U.S. dollar helped the
greenback, sending commodity-linked currencies like the
Canadian and Australian dollars sharply lower. [FRX/]
 Global stock markets also plunged, with U.S. indexes
dropping more than 4 percent and Toronto's main index down more
than 3 percent as worried investors took to the sidelines
awaiting better economic news. [MKTS/GLOB]
 "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 ended the session at C$0.9795 versus
the U.S. dollar, or $1.0209, down sharply from Wednesday's
North American session close at $0.9626 to the U.S. dollar, or
$1.0389.
 The currency at one point fell as low as C$0.9813, its
weakest since June 29 and worst intraday performance since
March 15, when it tumbled more than 2-1/2 U.S. cents on fears
of nuclear catastrophe in Japan.
 Tulk pointed to near-term Canadian dollar support at around
C$0.98, levels last seen at the end of June, but warned the run
by investors to safe havens may mean previous assumptions about
trading ranges will 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 and U.S. two-year Treasury note yields
dipped to a record low as recession fears drove investors to
the safety of U.S. government debt. [US/]
 Canada's two-year bond CA2YT=RR was up 47.5 Canadian
cents to yield 1.013 percent, while the 10-year bond
CA10YT=RR added C$1.30 to yield 2.521 percent, near a
multi-year low.
 (Editing by Jeffrey Hodgson)