CANADA FX DEBT-C$ falls with euro as debt crisis weighs

Mon Dec 20, 2010 4:33pm EST
 
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 * C$ falls to 97.94 U.S. cents
 * C$ tracks broad move lower in euro
 * Wholesale trade data, BMO deal also drag
 * Government bond prices higher
 (Recasts after wholesale trade data)
 By Claire Sibonney
 TORONTO, Dec 20 (Reuters) - The Canadian dollar retreated
against its U.S. counterpart on Monday, tracking weakness in
the euro as markets were hit by fears of further ratings
downgrades of debt-stricken euro zone countries and banks.
  Moody's Investors Service said it may cut its ratings on
some Spanish banks following its multi-notch downgrade of
Ireland's credit rating last week, with speculation rising that
France and Belgium may also face possible cuts. [FRX/]
 The Canadian dollar was the second worst performing major
currency behind the euro, despite strength in commodity prices,
as the U.S. dollar got a safe-haven push higher.
 "It's certainly not the usual suspect ... it's really more
related to a bit of renewed strength in the U.S. dollar broadly
as the euro has sunk again," said Doug Porter, deputy chief
economist at BMO Capital Markets. "As far as I'm aware it's not
particularly specific to Canada."
 Some soft Canadian data was seen playing a small role in
the currency's drop as domestic wholesale trade figures came in
below expectations. [ID:nN20186706]
 "We saw most of the move in terms dollar/Canada this
morning and that move corresponded with the move in euro,"
said Camilla Sutton, chief currency strategist at Scotia
Capital. "The moves happened almost in tandem so it implies
that it's probably less CAD-focused news than it is just
general market moves and risk aversion."
 The Canadian currency fell as low as C$1.0210 against the
U.S. dollar, or 97.94 U.S. cents, during the session, almost a
penny lower than Friday's close.
 Market watchers also speculated that the Canadian currency
may be taking a hit from news last week of Bank of Montreal's
(BMO.TO: Quote) $4.1 billion stock deal to buy Wisconsin lender
Marshall & Ilsley Corp MI.N. [ID:nN20206439]
 While there is no cash component to the deal, currency
flows could be affected by the assumption that M&I shareholders
not interested in holding BMO stock would want to sell it, and
in turn sell Canadian dollars.
 However, a smaller C$1.05 billion deal announced on Monday
by South Africa's Sasol (SOLJ.J: Quote) to buy a half share of a
Talisman Energy Inc TLM.TO shale gas property was seen
partially offsetting that possible negative impact on the
Canadian dollar. [ID:nLDE6BJ04G]
 The currency CAD=D4 closed the North American session at
C$1.0164 to the U.S. dollar, or 98.39 U.S. cents, down from
Friday's close at C$1.0128 versus the greenback, or 98.74 U.S.
cents.
 With some riskier assets taken off the table, Canadian bond
prices were higher across the curve.
 The two-year bond CA2YT=RR rose 3 Canadian cents to yield
1.630 percent, while the 10-year bond CA10YT=RR climbed 16
Canadian cents to yield 3.165 percent.
 Looking to the rest of the week, the Canadian consumer
price index report for November on Tuesday will likely be the
highlight of the week, although retail sales and gross domestic
product figures for October may also sway the currency.
 Inflation has been lower than expected for much of the
year, so markets are looking for reassurance the trend won't
suddenly be reversed. Such reassurance would leave the central
bank in a comfortable position to hold its key interest rate
unchanged at 1 percent for at least the first quarter of 2011.
For details, see [ID:nN17250600] ECONCA
 (Additional reporting by Ka Yan Ng; editing by Peter Galloway)