April 27, 2009 / 8:43 PM / 8 years ago

CANADA FX DEBT-C$ down, bonds up as swine flu worries weigh

* C$ touches low of 81.85 U.S. cents

* Bond prices higher as equities weak

* Threat of swine flu knocks equity markets (Adds details, quote)

By Jennifer Kwan

TORONTO, April 27 (Reuters) - Canada’s currency fell on Monday as worries about the magnitude of the swine flu outbreak pulled down the prices of Canadian commodities and pushed investors to the perceived safe haven of the U.S. dollar.

Commodity prices and equity markets fell on concern that the outbreak could dampen any economic rebound [MKTS/GLOB]. Mexico said on Monday that 149 people had been killed by the virus, which has spread to the United States, Canada and Europe [ID:nN27484099].

“If you see people a little bit nervous over the uncertainty, it may cause a little bit of a spillover impact in terms of people curtailing consumption and things that would normally be expected to help promote economic growth,” said George Davis, chief technical strategist at RBC Capital Markets.

“That uncertainty is why the equity markets are trading with a softer tone.”

The Canadian currency dropped as low as C$1.2217 to the U.S. dollar, or 81.85 U.S. cents, but climbed a bit to finish at C$1.2195 to the U.S. dollar, or 82.00 U.S. cents, down from Friday’s close of C$1.2097 to the U.S. dollar, or 82.67 U.S. cents.

Oil prices, a key Canadian export, settled lower at $50.14 a barrel amid fears the flu outbreak in Mexico could hurt the economy and air travel. [ID:nSYD459691]

“Markets remain uncertain in terms of what the eventual impact will be,” said Paul Ferley, assistant chief economist at Royal Bank of Canada.

“How long this trend persists largely depends on more information in terms of the spread of the swine flu, whether there are indications of the problem deepening or not.”

With no major economic data out on Monday, the currency was largely influenced by the broader theme of risk aversion, said Davis, as well as movements in the U.S. dollar, which typically appreciates in times of uncertainty. [ID:nN27499283]

There are several economic releases due later this week in both Canada and the United States. In Canada, February gross domestic product data is due for release on Thursday.

BONDS HIGHER

Canadian bond prices were higher across the curve alongside the bigger U.S. Treasury market as investors opted for more secure assets as global stocks weakened on swine flu fears. [ID:nN27414352]

“With these concerns weighing on equity markets, we’re seeing funds move into fixed income markets as safe-haven flows,” Ferley said.

“It’s mainly into the U.S., but there seems to be a spillover into Canadian markets. As a result, we’re seeing yields drift lower.”

The two-year Canada bond was up 3 Canadian cents at C$100.58 to yield 0.969 percent, while the 10-year bond was unchanged at C$106.37 to yield 3.013 percent.

The 30-year bond was up 5 Canadian cents at C$121.45 to yield 3.757 percent. In the United States, the 30-year Treasury yielded 3.8441 percent.

Canadian bonds largely underperformed their U.S. counterparts across the curve. The Canadian 10-year bond yield was 9.4 basis points above its U.S. counterpart, compared with about 6.9 basis points on Friday. (Additional reporting by Frank Pingue; editing by Peter Galloway)

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