CANADA FX DEBT-C$ stumbles on concerns about U.S. economy
* C$ ends at 97.07 U.S. cents
* US$ weakness against other currencies hurts C$
* Bonds follow U.S. Treasuries higher (Updates to close, adds quote)
By Jennifer Kwan
TORONTO, Sept 28 (Reuters) - Canada's dollar fell against its U.S. counterpart on Tuesday, undercut by weak oil prices and broad investor concerns about the health of the U.S. economy.
The greenback fell broadly against some major currencies after data showed U.S. consumer confidence declined to the lowest level in seven months in September, increasing expectations that the U.S. Federal Reserve will print money to buy assets to stimulate spending and investment, a process known as quantitative easing. [FRX/]
Typically, a weak U.S. dollar would provide a boost to the Canadian currency, but Canada's close ties to the American economy have kept it under pressure, market watchers say.
"Canada has been caught up in this holding pattern whereas the U.S. dollar has depreciated against pretty much all the other majors in anticipation of quantitative easing. The Canadian dollar just refuses to participate," said David Tulk, senior macro strategist at TD Securities.
"I think that is largely a reflection of people realizing that maybe the Bank of Canada won't be aggressive with hiking rates through the end of the year. That has weighed on the currency."
Markets are currently pricing in only a 20 percent chance of a Bank of Canada rate hike on Oct 19, according to a Reuters calculation using data on overnight index swaps. BOCWATCH
The Canadian dollar CAD=D3 finished at C$1.0302 to the U.S. dollar, or 97.07 U.S. cents, down from Monday's finish of C$1.0283 to the U.S. dollar, or 97.25 U.S. cents.
"If there is a such a decline in the U.S. confidence levels is that seeping over more so to the Canadian economy?" C.J. Gavsie, managing director of foreign exchange sales, said of Tuesday's consumer confidence reading.
"We're so closely tied there are concerns, definitely."
Market watchers say the underlying theme pervading markets is uncertainty about the strength of the global recovery in 2011.
Key areas of focus include any future quantitative easing by the Fed, even in a modest form, as well as concerns about euro zone banks and some countries' debts. [ID:nFEDAHEAD] [MKTS/GLOB]
Also weighing on the currency on Tuesday was weak oil, a key Canadian export, which fell to around $76 a barrel. [O/R]
Gavsie said a technical range to look out for this week is between C$1.0265 to the U.S. dollar and C$1.04.
Canadian bond prices tracked higher with U.S. Treasuries, a market in which the yield curve was the flattest since early September. [US/]
"What we've seen in terms of the global bond bid over the last little while has been reflected in Canada," said TD's Tulk. "In expectation that the Fed does proceed with quantitative easing as early as November, some of that will bleed through to Canadian yields."
Canadian bonds mostly outperformed their U.S. counterparts, with the exception of the long end. The two-year bond was up 6 Canadian cents to yield 1.391 percent, while the 10-year bond rose 53 Canadian cents to yield 2.741 percent. (Reporting by Jennifer Kwan; editing by Peter Galloway)
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