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

Thu Sep 22, 2011 12:06pm EDT
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   * C$1.0324 vs US$, or $0.9686
 * Greenback 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 an
11-month low on Thursday as a grim outlook for the U.S. economy
and signs of slowing growth in China and Germany drove
investors to the safety of U.S. debt and the U.S. dollar.
 World stocks fell more than 4 percent and the U.S. dollar
climbed to a seven-month high against a basket of major
currencies as investors dumped riskier trades in favor of the
world's most liquid currency. [MKTS/GLOB]
 A stark economic assessment from the Federal Reserve 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
 "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.
 At 11:56 a.m. (1556 GMT), the Canadian dollar CAD=D4
stood at at C$1.0324 to the U.S. dollar, or 96.86 U.S. cents.
While that was slightly stronger than the session low of
C$1.0362 to the U.S. dollar, or 96.51 U.S. cents, hit early in
the day, it was well below Wednesday's North American close at
C$1.0059 to the U.S. dollar, or 99.41 U.S. cents.
 Canada's economy has generally been a bright spot amid
global woes, helping to buoy the currency, but it cannot
continue to outperform if its largest trading partner, the
United States, remains in a slump.
 The Fed's concern about "significant downside risk" to the
U.S. economy started the market slide on Wednesday, but worries
increased on Thursday when HSBC's China Flash PMI showed the
factory sector shrank for a third consecutive month in
September, pointing to a slowdown in the world's second-largest
economy. [ID:nL3E7KM0C9]
 European woes, which center on protracted sovereign debt
crises in Greece and beyond, remain at the forefront of the
global economic crisis, and Canadian Finance Minister Jim
Flaherty said the Canadian dollar was a victim in the resulting
stampeded to the U.S. currency.
 "We see that with the Australian currency and the New
Zealand currency as well. This is the flight to the U.S. dollar
as the world currency. Our currency ... has shown some modest
decline. That's part of this difficulty that we're in right now
that needs to be resolved in Europe," Flaherty told reporters.
 As the morning's flurry of trade eased, the Canadian dollar
settled around C$1.03, and Scotia Capital Chief Currency
Strategist Camilla Sutton said technical levels for
dollar-Canada trade had been rewritten.
 "Support is fairly far away, probably today's open at
C$1.0081. In terms of resistance it is interesting because you
do have to dig back a little bit, but as we get up to that
C$1.0375 -- which are levels we have not seen since late 2010
-- we start to see some historical congestion in there," Sutton
 "We used to talk about all stars aligning towards the
Canadian dollar, but really ... all of our drivers in the near
term have very quickly shifted into negative territory."
 The mood drove investors to seek relative safety in
government bonds, and Canadian long-term debt prices soared
alongside U.S. Treasuries.
 The two-year Canadian government bond CA2YT=RR was up 10
Canadian cents to yield 0.864 percent, while the 10-year bond
CA10YT=RR climbed 55 Canadian cents to yield 2.059 percent.
 The yield on the 30-year bond sank to 2.697 percent, a low
not reached in records going back to the 1970s.
 (Additional reporting by Louise Egan in Ottawa; editing by Rob