CANADA FX DEBT-C$ drops by a penny on euro zone woes

Fri Nov 26, 2010 4:45pm EST
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article
[-] Text [+]

 * 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)