CANADA FX DEBT-C$ drops by a penny on euro zone woes
* C$ ends at 98.04 U.S. cents
* Bonds higher on euro zone contagion worries
* Market eyes next week's Canada GDP, jobs data (Updates to close, adds quote)
By Jennifer Kwan
TORONTO, Nov 26 (Reuters) - The Canadian dollar skidded a full U.S. cent against the greenback on Friday as investors flocked to the U.S. currency on worries about the debt woes of peripheral euro zone countries.
Worry about indebted European nations intensified as newspaper reports shifted attention from Irish debt to Spain and Portugal, prompting denials from the euro zone governments that they might require bailouts. [ID:nLDE6AP08Y]
As well, China warned against military acts near its coastline ahead of U.S.-South Korean naval exercises that North Korea said risked pushing the region towards war. The North shelled a South Korean island earlier this week. [ID:nL3E6MQ058]
"The Canadian dollar is suffering basically as a consequence of European fiscal problems and Korean peninsula conflict," said Eric Lascelles, chief Canada macro strategist at TD Securities.
"The risk aversion story is blooming again and the U.S. dollar is once again the darling in the eyes of the market and that has left the Canadian dollar a little bit less glamorous."
The Canadian currency CAD=D4 touched a low of C$1.0247 to the U.S. dollar, or 97.59 U.S. cents. It ended the session at C$1.0200 to the U.S. dollar, or 98.04 U.S. cents, down sharply from Thursday's close at C$1.0097 to the U.S. dollar, or 99.04 U.S. cents.
The Canadian currency also fell for the third consecutive week, dropping 0.2 percent.
Key Canadian data due out next week includes growth data for September and the third quarter, as well as November employment data. The question on investors' minds will be whether global or domestic factors dominate.
Firas Askari, head of foreign exchange trading at BMO Capital Markets, said employment data will be key ahead of the Bank of Canada's Dec. 7 interest rate announcement.
"I'm thinking it could be a pretty strong number which could really put the Bank of Canada in a bit of a bind," said Askari.
"We're seeing some strong signs of the Canadian economy starting to stabilize and they are definitely going to be on guard for any signs of heating up," he said.
The Bank of Canada recently said it would have to consider any further rate hikes carefully given the patchy global recovery and expected curbs on Canadian growth. For more details, please see: [ID:nN27276109] [CA/POLL]
However, some recent strong Canadian economic data, including retail sales, and higher-than-expected inflation had spurred speculation that the Bank of Canada could resume its rate-hike campaign sooner than recently thought.
BONDS EDGE HIGHER
Canadian bonds firmed, tracking U.S. Treasuries, as prices climbed on mounting speculation Portugal will follow Ireland in seeking bailout funding. [US/]
"Bonds have rallied pretty steadily across curve," said TD's Lascelles. "Some of those risk aversion factors are dominating."
The two-year government of Canada bond CA2YT=RR gained 12 Canadian cents to yield 1.669 percent, while the 10-year bond CA10YT=RR rose 50 Canadian cents to yield 3.108 percent.
Canadian bonds mostly outperformed U.S. Treasuries. The Canadian 2-year bond CA2YT=RR was 115 basis points above the U.S. 2-year yield, compared with about 121 basis points on Thursday. (Editing by Jeffrey Hodgson)
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