November 16, 2010 / 5:58 PM / in 7 years

CORRECTED - CANADA FX DEBT-C$ sags to near 3-week low as risk sells off

(Corrects paragraph 12 to show recent upper range of U.S. dollar vs Canadian was C$1.0160, not C$1.0560)

* C$ hits session low of 97.54 U.S. cents

* Canadian bond prices higher across curve (Updates to afternoon; adds details, commentary)

By Claire Sibonney

TORONTO, Nov 16 (Reuters) - The Canadian dollar shed more than a cent against the greenback on Tuesday, hitting its lowest level in nearly three weeks, as commodity prices and equity markets slumped and weak domestic data fueled concerns about economic growth.

The currency CAD=D4 fell as low as C$1.0252 to the U.S. dollar, or 97.54 U.S. cents, by late morning, its weakest level since Oct. 28.

North American equities sold off hard amid festering worries over fiscal tightening in China and euro zone debt levels. [.N] [.TO]

Prices for key Canadian commodities, such as oil, base metals and gold, were also down sharply as the U.S. dollar continued to strengthen on rising risk aversion. [O/R] [MET/L] [GOl] FRX/]

“I don’t think there’s been one particular trigger for this,” said Shaun Osborne, chief currency strategist at TD Securities.

“What we saw last week was very definitely another ramp-up in speculative risk positions, long Canadian dollar positions, which I would imagine ... would have been unwound over the course of the past couple days as the Canadian dollar has strengthened.”

Osborne noted that talk of larger investors “starting to tidy up positions” and perhaps liquidating some riskier assets ahead of the year-end, may signal a new short-term trend.

Adding extra pressure on Canada’s currency, domestic manufacturing sales were in September, as expected, pressured by weak auto production, a strong currency and sagging exports, which are all putting the brakes on economic growth. [ID:nN1699569]

The Canadian dollar was already an underperformer before the figures came out in early morning, but Osborne said it did have a modest impact and probably encouraged a little more selling.

“Softer data from Canada this morning which we can’t really ignore either ... does suggest that the second half of the year does appear to be gearing down quite significantly compared to very strong growth in the first half of the year for Canada.”

At 12:33 p.m. (1733 GMT), the Canadian dollar CAD=D4 was at C$1.0244 to the U.S. dollar, or 97.62 U.S. cents, down sharply from C$1.0089 to the U.S. dollar, or 99.12 U.S. cents, at Monday’s close.

The session saw a break in a recent short-term range for the U.S. dollar versus the Canadian currency of around C$0.9980 to C$1.0160, with parity constituting a very strong recent support level for the greenback.

The next key barrier for the U.S. dollar against Canada lies near the 100- and 200-day moving averages around C$1.03. Osborne said a break of that area could take the Canadian currency back to around C$1.0650, to weakness last seen in August.

Canadian bond prices rebounded on Tuesday, as renewed risk aversion and the soft Canadian data saw investors flock to the safety of government debt.

The two-year bond CA2YT=RR rose 10 Canadian cents to yield 1.585 percent, while the 10-year bond CA10YT=RR gained 40 Canadian cents to yield 3.097 percent. (Reporting by Claire Sibonney; editing by Rob Wilson)

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