CANADA FX DEBT-C$ shaken as U.S. data spoils risk appetite

* C$ hits session low of 84.89 U.S. cents

* Weak data and oil prices drive action

* Bond prices up in face of equity selloff

TORONTO, May 13 (Reuters) - Canada’s currency tumbled to its lowest level in a week on Wednesday as soft U.S. data and a skid in North American equities dimmed hopes for an economic recovery and lessened demand for perceived riskier assets.

The decline comes after the currency shrugged off previous weak news and economic data to reach its highest level in more than six months on Monday.

Late in the session on Wednesday the Canadian dollar fell as low as C$1.1780 to the U.S. dollar, or 84.89 U.S. cents. Earlier this week it rose to C$1.1476 to the U.S. dollar, or 87.14 U.S. cents, its highest level since early November.

“The Canadian dollar appreciated over the last two weeks as risk sentiment improved so we backed off today as the equity markets came off and people took profits short U.S. dollar trades,” said Tyson Wright, senior foreign exchange trader at Custom House, currency services firm in British Columbia.

“The market was starting to feel like things were getting overbought and a lot of the bad news wasn’t being factored into the market and was being pushed aside.”

That changed in the latest session when the data from the United States showed retail sales fell for the second straight month in April, which dented hopes the economy would soon emerge from recession. [ID:nN13384420]

The retail sales data triggered a sharp selloff in equities and offered a bid to the U.S. dollar given its status as a safe haven play.

The Canadian dollar closed at C$1.1759 to the U.S. dollar, or 85.04 U.S. cents, down from C$1.1620 to the U.S. dollar, or 86.06 U.S. at Tuesday’s close.

Another drag on the Canadian dollar came from the price of oil, a key Canadian export whose price often influences action, which fell in the latest session on the uncertain economic outlook. [ID:nN13353521]


Canadian bond prices ended higher across the curve, largely following the rally in the bigger U.S. Treasury market as the safe-haven status of government debt benefited from U.S. data that reminded dealers of the rocky road to recovery.

And with Toronto’s key stock index ending down 3.65 percent and the Dow Jones industrial average off 2.18 percent, bonds were the optimal choice for investors.

With no key Canadian data due out until later in the week, domestic bonds are expected take their direction from their U.S. counterparts and equities.

The next economic indicator ECONCA that may influence Canadian bonds is Friday's Canadian manufacturing survey for March.

The benchmark two-year Canadian government rose 1 Canadian cent to C$100.27 to yield 1.116 percent, while the 10-year bond rallied 25 Canadian cents to C$105.55 to yield 3.103 percent.

The 30-year bond ended up 90 Canadian cents at C$119.40 to yield 3.861 percent.

Canadian bonds underperformed their U.S. counterparts across most of the curve. The 30-year bond yield was about 23 basis points below the U.S. 30-year yield, compared with around 25 basis points below on Tuesday. (Editing by Jeffrey Hodgson)