February 8, 2011 / 6:10 PM / 9 years ago

CANADA FX DEBT-C$ hits 1-week low as China sparks oil fears

   * C$ touches low of $1.0069
 * Bond prices softer across curve
 (Updates to midafternoon, adds details, quotes)
 By Claire Sibonney
 TORONTO, Feb 8 (Reuters) - The Canadian dollar hit a
one-week low against the U.S. dollar on Tuesday, as fears
mounted over demand for oil and other commodities after China
raised interest rates for the second time in just over a month.
 The currency CAD=D4 hit a session low of C$0.9931 versus
the greenback, or $1.0069, its weakest level since Feb. 1.
 Risk sentiment was undercut by China's latest rate hike,
aimed at cooling inflation, which unsettled global markets,
including oil prices, on concerns that demand will ease.
 "There is speculation that further increasing rates in
China will have a spillover effect on a bit of a commodity
price slowdown," said C.J. Gavsie, managing director of foreign
exchange sales at BMO Capital Markets.
 Gavsie also noted that worries that Egypt's political
turmoil could hamper oil flows in the Mideast have eased.
 U.S. crude oil futures prices fell more than 1 percent to
$86.51 a barrel early Tuesday morning after China's rate hike.
 Gavsie said that if U.S. oil prices retreat to the low $80s
to high $70s range, the Canadian dollar could weaken by another
couple cents, sliding back below parity with its U.S.
 At 12:37 p.m. (1737 GMT), the Canadian dollar CAD=D4
stood at C$0.9911 to the U.S. dollar, or $1.0090, down from
Monday's North American close at C$0.9902 to the U.S. dollar,
or $1.0099.
 Gavsie said near-term support for the currency lies around
C$0.9970 to C$1.0015, and resistance at C$0.9827 to C$0.9850.
 Not helping matters for the Canadian dollar, domestic
housing starts rose only a modest 0.8 percent in January.
 The data showed strength concentrated in rural areas offset
dips in urban markets, suggesting the once buoyant housing
sector will continue to weigh on economic growth.
 Canadian government bond prices were mostly softer across
the curve, tracking U.S. Treasuries, as investors braced for
$32 billion in sales of three-year U.S. notes. [US/]
 The two-year bond CA2YT=RR was off 1 Canadian cents to
yield 1.838 percent, while the 10-year bond CA10YT=RR slipped
12 Canadian cents to yield 3.449 percent.
 (Reporting by Claire Sibonney; editing by Rob Wilson)

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