November 21, 2011 / 8:16 PM / in 6 years

Loonie falls as U.S. worry sharpens global debt woes

TORONTO (Reuters) - The Canadian dollar fell against the U.S. currency on Monday as fears about government debt in the United States added to the high anxiety about Europe and spurred another flight to safe-haven assets.

In the United States, after months of talks, the high-profile bipartisan congressional effort to rein in the ballooning U.S. debt was expected to end in failure with negotiators set to announce they could not bridge deep divides over taxes and spending cuts.

Meantime, risk premiums on Spanish, Italian, French and Belgian government bonds rose as investors fled to safe-haven German Bunds. European shares .FTEU3 fell more than 3 percent after Moody’s warned that France’s credit rating faced new dangers.

“It’s a global risk-off move right now,” said David Tulk, chief Canada macro strategist at TD Securities.

“Investors are at a point where they prefer U.S. dollars at the expense of other currencies. Unfortunately, the Canadian dollar is caught up in the cross-fire.”

The Canadian dollar ended the session at C$1.0378 versus the U.S. dollar, or 96.36 U.S. cents, falling nearly a penny from Friday’s North American close of C$1.0272, or 97.35 U.S. cents.

Through the day the currency swung a fairly wide range from a low of C$1.0419 to the greenback, or 95.98 U.S. cents, its weakest point since October 7, to a high of C$1.0270, or 97.37 U.S. cents.

Camilla Sutton, chief currency strategist at Scotia Capital, said the Canadian dollar had managed to pierce a trading range that it had clung to for weeks.

“From here, it gets more psychological than anything,” Sutton said, noting levels of C$1.05 and C$1.06 would be key milestones.

“We’re in a very volatile environment right now and I think the outlook for Europe is deteriorating fairly rapidly, and I think that it’s playing havoc with risk aversion.”

BONDS CLIMB

Canadian government bond prices rose alongside U.S. Treasuries on Monday as stock market losses and the difficulties of some euro zone countries to sell debt in capital markets ignited a rush to safety.

“It’s the flip side off that risk-off trade where investors are seeking the safety of U.S. Treasuries and, to a lesser degree, Canadian government bonds,” TD’s Tulk said.

“We’re looking at yields down across the board.”

The two-year bond added 2 Canadian cents to yield 0.903 percent, while the 10-year bond rose 23 Canadian cents to yield 2.105 percent.

Additional reporting by Claire Sibonney; editing by Peter Galloway

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