CANADA FX DEBT-C$ slumps to 11-year low on flight to safety
(Updates with analyst comment, details, closing figures) * Canadian dollar at C$1.3346, or 74.93 U.S. cents * Bond prices lower across the maturity curve By Solarina Ho TORONTO, Aug 25 (Reuters) - The Canadian dollar reversed earlier gains on Tuesday to stumble to 11-year lows against the U.S. dollar, which rebounded from seven-month lows following an interest rate cut by China. The People's Bank of China announced a 25 basis point interest rate cut the one-year benchmark lending rate, after volatile trading on Monday as global markets spiraled into panic selling on worries over the impact of slower Chinese growth. Equity markets rebounded early on Tuesday, but the rally evaporated late in the North American session as the fears about China took hold again. "What we're looking here is a general shift in risk sentiment that was looking a little bit better this morning, but has since faded pretty dramatically," said David Tulk, chief Canada macro strategist at TD Securities. "The Canadian dollar is quite clearly caught in the crossfire from that side of things. ... I think flight to safety is definitely dominant." The Canadian dollar closed at C$1.3346 to the greenback, or 74.93 U.S. cents, weaker than the Bank of Canada's official close of C$1.3262, or 75.40 U.S. cents, on Monday. The loonie traded broadly between C$1.3144 and C$1.3353, touching its weakest level since mid-2004. Investors expect the currency to soften further in the coming weeks and months. The price of crude, a key Canadian export, rebounded from hefty losses on Monday, but remained under $40 a barrel, near 6-1/2-year lows. Canadian government bond prices were lower across the maturity curve, with the two-year price down 6.5 Canadian cents to yield 0.355 percent and the benchmark 10-year falling 65 Canadian cents to yield 1.329 percent. The Canada-U.S. two-year bond spread widened to -25 basis points, while the 10-year spread widened to -74.2 basis points. (Reporting by Solarina Ho; Editing by Leslie Adler)
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