CANADA FX DEBT-C$ falls as anxiety about Europe mounts

Wed Nov 16, 2011 4:47pm EST
 
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 * C$ ends at C$1.0229 vs US$, or 97.76 U.S. cents
 * Hit earlier session low of C$1.0290, weakest in 1 month
 * Bond prices flat to higher across curve
 (Updates to close, adds details, comment)
 By Jennifer Kwan
 TORONTO, Nov 16 (Reuters) - The Canadian dollar closed
lower against the U.S. currency on Wednesday, but above the
one-month low it hit earlier in the day, as concerns that the
euro zone debt crisis is spreading kept investors away from
risk assets.
 That worry also pushed down global equity markets and the
euro as the European Central Bank's purchases of sovereign debt
failed to stem a selloff of euro zone bonds or to calm fears
that the debt crisis is expanding. [MKTS/GLOB]
 The euro fell to five-week lows against the dollar and the
yen as rising French and Italian borrowing costs heightened
concerns about euro-zone debt crisis contagion. [FRX/]
 As well, sentiment was hurt by a statement released by
Fitch rating agency that said U.S. banks have manageable direct
exposure to stressed European markets, but that further
contagion would pose a serious risk. [ID:nWNA3730]
 "There's been a give-up in equities and a give-up on
risk-related currencies ... predominantly on the statements
made by Fitch," said Jack Spitz, managing director of foreign
exchange at National Bank Financial.
 "The concern is of course that the contagion effect can
happen not only in Europe but across the pond as well."
 The Canadian dollar  CAD=D4 finished the session at
C$1.0229 against the U.S. dollar, or 97.76 U.S. cents, down
from Tuesday's North American close of C$1.0208 against the
greenback, or 97.96 U.S. cents.
 It was a volatile day for the Canadian dollar as it swung
from a low of C$1.0290 early in the session to a high of
C$1.0172. It hit the high on the back of a spike in oil prices
above $100 a barrel. [O/R]
 The resource-driven currency's correlation with oil came
back into play after recently giving way to dominating worries
about the euro zone debt crisis.
 However, market players cautioned that the correlation will
not be meaningful again until the European story moves to the
back-burner.
 "Oil has been a story of its own here with the run it's had
over $100, and the correlation has broken down quite badly
between the Canadian dollar and oil as of late," said Blake
Jespersen, director of foreign exchange sales at BMO Capital
Markets.
 "You've seen crude rally almost 10 percent and the Canadian
dollar really hasn't moved, in fact it's weakened off."
 Jespersen noted there was support for the Canadian currency
around C$1.0350 and resistance back toward parity with the
greenback.
 BONDS FLAT TO HIGHER
 Canadian government bond prices were little changed to
slightly higher across the curve. The two-year bond CA2YT=RR
was unchanged to yield 0.902 percent, while the 10-year bond
CA10YT=RR rose 68 Canadian cents to yield 2.723 percent.
  Canada's sale of 30-year government bonds on Wednesday
generated the lowest average yield in at least eight years as
mounting euro zone debt concerns sent investors flocking to
markets viewed as safe havens. [ID:nN1E7AF1DG]
 (Additional reporting by Claire Sibonney; editing by Peter
Galloway)