TORONTO (Reuters) - The Canadian dollar tumbled to a four-month low against its U.S. counterpart on Friday as investors fretted about Spain’s deteriorating finances and a possible Greek exit from the euro.
The euro plumbed a 22-month low against the U.S. dollar after the president of Catalonia, Spain’s wealthiest autonomous region, said the region is running out of options for refinancing more than 13 billion euros ($16.27 billion) in debt that comes due this year.
“There’s a lot of uncertainty regarding Europe, and the Canadian dollar, which is largely a play off risk sentiment, is reacting accordingly,” said Mazen Issa, macro strategist at TD Securities. “With risk sentiment as bruised as it is, it’s hard to see it going the other way for the moment.”
The Canadian currency fell as low as C$1.0301 against the U.S. currency, or 97.07 U.S. cents, its lowest level since January 9.
Worries were compounded on Friday after Belgium’s deputy prime minister, Didier Reynders, issued a warning over Greece, saying it would be a “grave professional error” if central banks and companies were not preparing for a Greek exit from the euro zone.
Greeks vote again on June 17, with polls showing a close race between parties supporting and opposing the austerity measures that are part of the terms of the country’s international bailout, keeping markets on tenterhooks.
Issa saw the currency weakening further in the weeks leading up to the Greek elections, possibly re-testing December lows around C$1.04.
“It’s probably going to be a little bit messy in the markets,” said Issa.
At 1:03 p.m. (1703 GMT), the Canadian dollar was at C$1.0296 against the U.S. dollar, or 97.12 U.S. cents, down from Thursday’s close at C$1.0271 versus the greenback, or 97.36 U.S. cents.
German consumer morale held steady going into June while Chinese exports showed signs of recovery in early May, countering recent data that suggested Germany, Europe’s growth engine, was no longer immune from the region’s debt crisis and factory output in China, the world’s number two economy, was faltering.
Analysts said trading would likely remain subdued ahead of the long U.S. holiday weekend. U.S. financial markets will be closed on Monday for the Memorial Day holiday.
“Markets are all pretty flat and it is the U.S. three-day weekend, that tends to suppress appetite for taking risk,” said Adam Cole, global head of FX strategy at RBC Capital Markets in London.
Uncertainty in Europe has hurt the Canadian dollar because investors have fled to the safety of the U.S. dollar and government debt.
Canadian government bond prices climbed across the curve with the two-year bond up 11 Canadian cents to yield 1.089 percent, while the benchmark 10-year bond climbed 43 Canadian cents to yield 1.822 percent.
The safe-haven buying drove longer-term Canadian bond yields to record lows. The 10-year yield sank as far as 1.796 percent, while the 30-year bond yield hit an all-time low of 2.336 percent.
Additional reporting by Andrea Hopkins; Editing by Leslie Adler