CANADA FX DEBT-C$ weakens as ECB leaves rates unchanged

Thu Oct 6, 2011 8:30am EDT
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 * C$1.0476 vs U.S. dollar, or 95.46 U.S cents
 * US dollar rises as ECB holds rates unchanged
 * Bond prices fall
 By Andrea Hopkins
 TORONTO, Oct 6 (Reuters) - The Canadian dollar weakened
sharply against its U.S. counterpart in early trade on Thursday
after the European Central Bank held interest rates unchanged,
dashing hopes it might cut rates to stimulate growth.
 Gold pared gains, government debt pared losses, and the
euro and commodity-linked currencies like the Canadian dollar
all slipped against the U.S. greenback as the ECB decision
weighed on the risk environment, sending skittish investors
back to the safety of U.S. Treasuries.
 "The ECB is on hold, that disappointed the markets and
suggests the ECB is more mindful of inflation than growth,"
said Jeremy Stretch, head of foreign exchange strategy at CIBC
World Markets in London.
 "I think obviously the key dimension will continue to be
the broader risk dynamics and the backdrop for the U.S. dollar
-- not the Canadian leg of the equation."
 At 8:11 a.m. (1211 GMT), the Canadian dollar CAD=D3 stood
at C$1.0476 to the U.S. dollar, or 95.46 U.S. cents, near the
session low and down from Wednesday's North American session
close at C$1.0402 to the U.S. dollar, or 96.14 U.S. cents.
 The Canadian currency had been virtually unchanged before
the ECB decision was announced.
 Stretch said he was skeptical the risk recovery that buoyed
equity markets and the Canadian dollar on Wednesday was
durable, suggesting the Canadian dollar would likely weaken
through the day to test north of C$1.05 to the U.S. dollar, or
95.2 U.S. cents.
 A Reuters poll released on Wednesday showed the Canadian
dollar is expected to recover from 13-month lows to return to
equal value with the U.S. dollar in six months' time, though
projections are not as buoyant as they were before September's
global meltdown. [CAD/POLL]
 Canada's dollar sank through parity with the U.S. greenback
in September and has mostly declined since, as investors shift
to the liquidity and security of the U.S. dollar as the
European crisis and fears of a global slowdown persist.
 Stretch said markets will keep an eye on the Ivey PMI,
which measures purchasing activity in Canada, due out at 10
a.m. (1400 GMT). U.S. and Canadian employment data, due on
Friday, will also be watched for signs of economic growth.
 Bond prices were lower across the board on Thursday. The
two-year Canadian government bond CA2YT=RR lost 2 Canadian
cents to yield 0.915 percent, while the 10-year bond
CA10YT=RR lost 17 Canadian cents to yield 2.158 percent.
  (Editing by Chizu Nomiyama)