May 9, 2012 / 8:38 PM / in 6 years

Canada dollar slides on Europe concerns

TORONTO (Reuters) - Canada’s dollar slid to its lowest in three and half months on Wednesday, back below parity against the U.S. dollar, as persistent fears about the health of Spanish banks and a political impasse in Greece worsened fears about the euro zone debt crisis.

Greece’s two mainstream parties rejected a coalition led by radical leftist Alexis Tsipras, forcing the country closer to having to re-run Sunday’s inconclusive election that saw voters overwhelmingly reject its EU/IMF bailout.

Meanwhile, Spain will demand banks set aside another $45 billion against loans to builders as it battles to rebuild confidence, sources told Reuters. Huge bank losses have raised fears the country may need an international bailout. (ID:nL5E8G8H7H)

Concerns about the stability of the region pushed the Canadian currency to C$1.0064 against the U.S. dollar, or 99.36 U.S. cents, its weakest level since January 30.

“The Canadian dollar is a risk-sensitive currency. The European concerns are weighing,” said Andrew Kelvin, senior fixed income strategist at TD Securities.

The currency finished at C$1.0009 versus the U.S. dollar, or 99.91 U.S. cents, down from Tuesday’s North American session close at C$0.9983 versus the U.S. dollar, or $1.0017.

The Canadian dollar notched a mixed performance against its G10 currency cousins. It outperformed currencies such as the euro and New Zealand dollar, and reached a 2012 high of C$1.0062 against the Australian dollar. But it underperformed versus the greenback and the Japanese yen.

“People didn’t want to believe that it would happen. It is happening - that Europe would rear its ugly head again,” said John Curran, senior vice president at CanadianForex.

Curran said he sees key Canadian dollar support at C$1.0050-C$1.0080 against the greenback.

The currency weakened in tandem with global equity and commodity markets as concerns over Europe added to worries about the impact of softer growth in the U.S. <MKTS/GLOB>

Canadian bond prices were mostly lower across the curve, with Canada’s 2-year bond down 1 Canadian cent to yield 1.231 percent, while the benchmark 10-year bond retreated by 29 Canadian cents to yield 2.003 percent.

Demand for Canadian 5-year government bonds was decent on Wednesday, with the average yield at 1.5 percent as investors remained nervous about the state of the global economy. <CA/AUC>

The C$3.4 billion auction of bonds produced an average yield of 1.5 percent, relatively flat from 1.4 percent at the last five-year bond auction in February.

The bid-to-cover ratio was 2.586, the highest since May. The ratio is a gauge of investor appetite, and a reading above 2 generally implies a well received auction.

“It just reflects the fact that there’s not a lot of risk appetite out there,” said Kelvin.

Editing by James Dalgleish

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