CANADA FX DEBT-C$ hits weakest since Oct 2010 in global slump
* 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 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.
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 said.
"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 Wilson)
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