CANADA FX DEBT-C$ drawn lower by euro zone worries

Wed May 25, 2011 9:02am EDT
 
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 * C$ eases to C$0.9786 to the U.S. dollar, or $1.0219
 * Bonds give up some of recent price gains
 TORONTO, May 25 (Reuters) - Canada's dollar was softer
against the U.S. currency on Wednesday morning, drawn lower
again by persistent worries about the euro zone's spreading
debt crisis.
 The pressure stemming from the euro zone worries has also
prompted market players to reassess when the Bank of Canada
might raise interest rates again.
 As well, recent disappointing economic data and dovish
comments from Bank of Canada Governor Mark Carney have helped
to cool rate hike expectations. [ID:nN20206551]
 The Canadian dollar slipped as low as C$0.9817 to the U.S.
dollar, or $1.0186, its lowest since March 28.
 By pushing and weakening through C$0.9760 to the U.S.
dollar, or $1.0246, this week, the currency may be poised for
further weakness.
 "It's sustainably through the 100-day moving average, an
important technical pivot point," said Jack Spitz, managing
director of foreign exchange at National Bank Financial.
 "Canada will take its cue from global macro factors in
keeping with the way its been for the past number of
sessions."
 He said he was eying the C$0.9830 and C$0.9850 levels,
which could eventually set up the Canadian dollar for run
towards parity.
 The Canadian dollar has held above parity since early
February.
 At 8:50 a.m. (1250 GMT), the Canadian dollar CAD=D4 was
at C$0.9786 to the U.S. dollar, or $1.0219, down from C$0.9761
to the U.S. dollar, or $1.0245, at Tuesday's close.
 The revised market expectations on the central bank pushed
up bond prices steeply in the last few sessions, and most
issues pared some of those recent gains on Wednesday.
 The central bank has left its benchmark rate unchanged at 1
percent since September.
 Almost no one expects the central bank to hike rates at its
next policy setting on May 31, as measured by overnight index
swaps, but market players have recently scaled back their bets
on rate hikes at every Bank of Canada announcement date from
July to December. BOCWATCH
 Canada's two-year bond CA2YT=RR was off 11 Canadian cents
to yield 1.606 percent, while the 10-year bond CA10YT=RR
decreased 7 Canadian cents to yield 3.118 percent.
 The three-year bond CA3YT=RR was up 4 Canadian cents to
yield 2.432 percent ahead of an auction C$3 billion in
three-year bonds later in the session.
 (Reporting by Ka Yan Ng)