CANADA FX DEBT-C$ falls on world growth fears, but data strong

Fri May 21, 2010 9:18am EDT
 
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   * C$ falls as low as 93 U.S. cents, lowest since Feb. 9
 * Bond prices climb in flight to safety
 * Canada April inflation tops forecast at 1.8 pct
 (Adds details throughout)
 By Ka Yan Ng
 TORONTO, May 21 (Reuters) - Canada's dollar hit its weakest
level in 14-weeks against the U.S. dollar on Friday as European
worries more than offset Canadian inflation data that kept
alive the possibility of a June 1 interest rate increase.
 The currency slumped as low as C$1.0753 to the U.S. dollar,
or 93.00 U.S. cents, its lowest since Feb. 9, as market players
weighed the higher than-expected data,  against persisting
global worries.
 It pared losses after Canadian retail sales in March soared
2.1 percent from February, the biggest increase since February
2005. [ID:nN21207192]
 The pair of strong economic data, however, had little
lasting influence on the Canadian dollar.
 "That just illustrates how powerful the safe haven bid is
in its ability to easily overwhelm the economic numbers," said
Eric Lascelles, chief Canada macro strategist at TD
Securities.
 The consumer price index gained 0.3 percent in April for an
annual inflation rate of 1.8 percent, Statistics Canada said.
 Core CPI, which excludes volatile items like gasoline and
closely monitored by the Bank of Canada, climbed 0.3 percent in
the month for an annual rate of 1.9 percent compared with
analysts' forecast of 1.8 percent rate. [ID:nN21149251]
ECONCA
 "It doesn't answer the question as to whether or not the
Bank of Canada goes on June 1. I think that's what most traders
are looking at: 'Is this number going to be a decisive enough
reason to move on June 1?'" said Jack Spitz, managing director
of foreign exchange at National Bank Financial.
 "And setting aside the other factors that are influencing
the markets, being risk on, risk off, equities, uncertainties
with respect to Europe, China, global growth concerns, they
remain very, very much influential in what will likely be a
decision that will come right down to June 1 for the Bank of
Canada."
 The data kept market expectations, as measured by yields on
overnight index swaps, about evenly split on whether the Bank
of Canada raises interest rates next month. BOCWATCH
 Market volatility arising from the European debt crisis has
dramatically eroded the market's sense of pending rate
increases. They were a near certainty a month ago when the
central bank removed its conditional commitment to leave rates
unchanged at 0.25 percent until the end of June.
 At 8:55 a.m. (1255 GMT), the Canadian dollar CAD=D4 had
pared session losses, to sit at C$1.0696 to the U.S. dollar, or
93.49 U.S. cents, down from C$1.0678, or 93.65 U.S. cents, at
Thursday's close.
 Canadian bonds prices climbed in a flight to safety as
European equity markets dropped and U.S. stock index futures
pointed to a lower open as well.
 European stocks fell despite German approval of a euro zone
rescue package, while market players also look for developments
from European finance ministers who were meeting later on
Friday to discuss changes to budget rules to prevent another
Greek-style debt crisis.  [MKTS/GLOB]
 The two-year government bond CA2YT=RR jumped 11 Canadian
cents to C$99.89 yield 1.556 percent, while the 10-year bond
CA10YT=RR gained 38 Canadian cents to C$101.95 to yield 3.271
percent.
 Another factor that may influence markets on Friday is
liquidity, which could dry up as the Canadian bond market
closes at 1 p.m. (1700 GMT) ahead of a long weekend. Canadian
financial markets are closed on Monday for Victoria Day.
 (Additional reporting by Claire Sibonney)
 (Editing by Theodore d'Afflisio)