CANADA FX DEBT-C$ hits two-week low on way to 4th down day
* C$ ends at 95.81 U.S. cents, falls to two-week low
* Bond prices mixed, straddling unchanged mark
* Yields on overnight index swaps drop (Updates to close)
By Ka Yan Ng
TORONTO, June 24 (Reuters) - The Canadian dollar weakened a fourth consecutive session against the U.S. currency on Thursday, pressured by a global retreat from riskier assets and a rethink on the outlook for the global economy.
The currency finished at C$1.0437 to the U.S. dollar, or 95.81 U.S. cents, down from Wednesday's finish at C$1.0384 to the U.S. dollar, or 96.30 U.S. cents.
It touched a two-week low earlier in the session, hitting C$1.0470 to the U.S. dollar, or 95.51 U.S. cents.
"Canada is still going to look vulnerable for the next few days," said Michael O'Neill, managing director at Knightsbridge Foreign Exchange, pointing to month- and quarter-end flows.
A subdued assessment of the U.S. economy by the Federal Reserve continued to weigh on world stocks and oil prices, while a recent wave of soft economic reports helped trigger a steep drop in the Canadian dollar this week.
It appears that the U.S. central bank will hold its key interest rate near zero for "an extended period," which could have implications on how aggressive the Bank of Canada can be with its own rate hike program, which began this month.
Yields on overnight index swaps, which trade based on expectations for the central bank's key policy rate, now point to a 63.26 percent chance of a 25 basis point hike on July 20. That is down from 80 percent earlier this week. BOCWATCH
"The backdrop still remains extremely dicey," said David Watt, senior currency strategist at RBC Capital Markets.
"Central banks are starting to ... express some very notable concern about the situation, and that is getting a lot of people rethinking rate profiles for central banks."
Market players are also monitoring developments in the run-up to two international summits in Canada this week, with leaders of the Group of Eight and Group of 20 nations coming together to discuss priorities for a world emerging from recession. [ID:nN18322198]
Canadian Finance Minister Jim Flaherty said on Thursday that a key issue for the G20 would be striking the right balance between growth and fiscal consolidation. [ID:nN24145434]
BONDS MIXED, BUT OUTPERFORM
With no major economic data to speak of, Canadian government bond prices were mixed with moves straddling unchanged and lacking conviction.
Weak stock markets and a paring back of rate hike expectations helped feed the short end of the curve, as investors favored the relative safety of government debt.
The two-year government bond CA2YT=RR was up 5 Canadian cents to yield 1.584 percent. while the 10-year bond CA10YT=RR dipped 5 Canadian cents to yield 3.239 percent.
Canadian bonds outperformed U.S. issues across the curve. The Canadian 10-year bond yield was 10.5 basis points above its U.S. counterpart, compared with 10.8 basis points in the previous session. (Reporting by Ka Yan Ng; editing by Rob Wilson )
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