CANADA FX DEBT-C$ falls after U.S. data stokes recession fears

Tue Jul 27, 2010 2:22pm EDT
 
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 * C$ falls as low as 96.19 U.S. cents
 * Bond prices lower across curve
 (Recasts to mid-afternoon)
 By Claire Sibonney
 TORONTO, July 27 (Reuters) - The Canadian dollar slumped
against its U.S. counterpart on Tuesday afternoon, reversing an
earlier rally, after data showed U.S. consumer confidence
dropped to the lowest level in five months in July, prompting
investors to sell riskier assets such as commodities and
equities.
 Job worries drove July U.S. consumer confidence to its
lowest since February, with one in six people surveyed
expecting lower income in the next six months, underscoring
perceptions of the precarious state of economic recovery.
[ID:nN27260375]
 Following the data and subsequent drop in North American
equity markets and oil prices, the Canadian currency fell more
than a penny to C$1.0396 to the U.S. dollar, or 96.19 U.S.
cents, down from a five-week high earlier in the day.
 "We have been on this risk rally for a while now," said
David Watt, senior fixed income and currency strategist at RBC
Capital Markets.
 "The Dow Jones is now positive for the year, the euro is
testing $1.30, the Aussie dollar is testing some key levels,
sterling is testing some key levels, and so whenever you get to
this point you get the markets wondering 'is this a trend
that's supposed to continue or should things fade off'?"
 Earlier, riskier assets across the board rose after upbeat
corporate earnings from both sides of the Atlantic and upbeat
U.S. housing data eased recent concerns that global economic
recovery is slowing.
 "You wonder who is going to step up to fill the consumption
gap, while we've got a number of countries that are well
prepared to step into the production gap," Watt said.
 "That particular issue when you weigh it down, will affect
dollar/CAD specifically because the U.S. is our largest trading
partner."
 He said that to the extent that the Canadian dollar
benefited earlier this year from the idea that the euro zone
and China would struggle and the United States would be the
source of growth going forward, the currency will now likely
suffer to an extent if there's a renewed focus on a U.S.
slowdown.
 At 1:40 p.m. (1740 GMT), the Canadian currency CAD=D4 was
at C$1.0384 to the U.S. dollar, or 96.30 U.S. cents, down from
Monday's finish of C$1.0324 to the U.S. dollar, or 96.86 U.S.
cents.
 Canadian bond prices were lower across the curve, tracking
U.S. Treasuries down. [US/]
 The two-year bond CA2YT=RR was 6 Canadian cents lower to
yield 1.625 percent, while the 10-year bond CA10YT=RR was
down 35 Canadian cents to yield 3.266 percent.
 (Reporting by Claire Sibonney; editing by Peter Galloway)