CANADA FX DEBT-C$ weakest since Oct 2010 in global slump

Thu Sep 22, 2011 8:31am EDT
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   * C$1.0306 vs US$, or $0.9703
 * Weakest since Oct 2010 as US$ soars on global fears
 * Fed statement left markets without confidence
 * Bond prices surge, Canada 30-yr yield lowest in decades
 By Andrea Hopkins
 TORONTO, Sept 22 (Reuters) - The Canadian dollar sank to
its lowest point since October 2010 as a grim outlook for the
U.S. economy from the Federal Reserve sent markets reeling to
the safety of U.S. Treasuries and the U.S. dollar.
 European stocks fell more than 4 percent to a two-year low,
helping drag global equities to a fresh one-year low. Wall
Street looked set for sharp losses at the start.
 The U.S. dollar rose to a seven-month high against major
currencies as a broad aversion to risk swept through financial
markets. [MKTS/GLOB]
 A stark economic assessment from the Fed late on Wednesday
initiated the change in sentiment and the Canadian dollar,
which had been mostly stronger than its U.S. counterpart for
months, quickly got caught up in the maelstrom.
 "Once it pierced parity yesterday there was nobody to stand
in the way so it just took off like a gorilla coming out of the
cage," said David Watt, senior currency strategist at Royal
Bank of Canada.
 The Canadian dollar CAD=D4 was at C$1.0306 to the U.S.
dollar in early trade, or 97.03 U.S. cents, well below
Wednesday's North American session close at C$1.0059 to the
U.S. dollar, or 99.41 U.S. cents.
 It sank as low as C$1.0351 overnight, the weakest point
since October 2010.
 While Canada's economy has generally been a bright spot
amid global woes, helping to buoy the currency, it cannot
continue to outperform if its largest trading partner, the
United States, continues to slump.
 Watt said he did not expect the Canadian currency to weaken
more dramatically, but warned the lack of confidence in the
market and in policymakers to fix the ailing global economy
means nothing is certain.
 "I'd be surprised if it gets towards C$1.05, but you're in
an environment where the market is extremely uncertain and in
periods of uncertainty, especially given the global macro
backdrop, people are going to go to their safe havens ... and
right now that is the U.S. dollar, even though nobody has a
strong positive view of the U.S," Watt said.
 "Be prepared for it to roll over, but at the same time
don't stand in the way because we just don't see what is going
to backstop confidence at the present time."
 While the Fed's concern about "significant downside risk"
to the U.S. economy started the market but concern was
increased on Thursday when HSBC's China Flash PMI showed the
factory sector shrank for the third consecutive month in
September, pointing to a slowdown in the world's second-largest
economy. [ID:nL3E7KM0C9]
 The mood overnight drove investors to seek relative safety
in government bonds. Canadian long-term debt prices soared.
 The two-year Canadian government bond CA2YT=RR was up 9
Canadian cents to yield 0.869 percent, while the 10-year bond
CA10YT=RR climbed 40 Canadian cents to yield 2.075 percent.
 The yield on the 30-year bond sank to 2.714 percent, a low
not reached in records going back to the 1970s.
 (Editing by Theodore d'Afflisio)