CANADA FX DEBT-C$ holds near 7-wk low, bonds up in risk play

Wed Aug 25, 2010 8:51am EDT
 
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   * C$ slips to 93.85 U.S. cents
 * Bonds rise in safe haven bid
 * European debt fears return, adds to recovery uncertainty
 By Ka Yan Ng
 TORONTO, Aug 25 (Reuters) - Canada's dollar held near a
seven-week low against the greenback on Wednesday morning as
European debt fears were added to malaise about the world
economic recovery, raising risk aversion.
 A one-notch downgrade to 'AA-' of Ireland's long-term
rating by credit agency Standard & Poor's reignited concern
about Europe, following a wave of weak economic data to have
hit the market recently. It sent riskier assets lower and
underscored support to bond prices. [ID:nN2481011]
[ID:nLDE67O0YY]
 Although data showed the German Ifo business climate index
climbed in August and exceeded expectations, the impact was
limited amid a greater worry of a double dip recession.
[ID:nLDE67O0JL]
 "Concerns quickly returned, not only about peripheral
Europe but also about the global recovery going forward and
we're trading at lower levels. Clearly fear is continuing to
dominate," said Matthew Strauss, senior currency strategist at
RBC Capital Markets.
 "The market is caught up in a negative psychology at the
moment where they are quick to pounce on a negative number,
since it confirms the fear, whereas a positive number is viewed
with skepticism," said Strauss.
 The Canadian dollar crept as low as C$1.0669 to the U.S.
dollar, or 93.73 U.S. cents, after data showing U.S. durable
goods orders rose far less than expected in July. It was
slightly weaker than the seven-week low hit on Tuesday at
C$1.0665 to the U.S. dollar, or 93.76 U.S. cents. 
[ID:nN25268843]
 By 8:35 a.m. (1435 GMT), the Canadian currency CAD=D4 had
recovered to C$1.0655 to the U.S. dollar, or 93.85 U.S. cents,
but was still down from Tuesday's close at C$1.0603 to the U.S.
dollar, or 94.31 U.S. cents.
 Strauss said a daily close above C$1.0679 would confirm a
trend change in the currency, which has closed lower for four
straight sessions.
 Investors will look to U.S. data, including July new home
sales, for clues about the state of the economy. The data
follows Tuesday's weaker-than-expected read on U.S. existing
home sales for July.
 Canada's government bond prices were firmer across the
curve, with safer assets were sought as North American equity
markets pointed to a lower open, tracking overseas markets.
 Bond prices have also rallied, while the currency has taken
a hit, on declining expectations of a third straight rate hike
by the Bank of Canada next month. The central bank has raised
rates twice since the start of June, but disappointing data has
hit yields on overnight index swaps for the Sept. 8 decision.
 Those yields, which trade based on market expectations for
the central bank's key policy rate, held around a 30 percent
chance of a rate hike, as calculated by Reuters. BOCWATCH
 Canada's two-year bond CA2YT=RR advanced 5 Canadian cents
to yield 1.174 percent, while the 10-year bond CA10YT=RR rose
38 Canadian cents to yield 2.781 percent.
 (Reporting by Ka Yan Ng; Editing by Chizu Nomiyama)