July 18, 2011 / 1:23 PM / in 6 years

CANADA FX DEBT-C$ softer as sovereign debt fears rise; BoC eyed

* C$ slips to C$0.9590 to the U.S. dollar, or $1.0428

* Bonds prices rise across the curve

* Bank of Canada interest rate announcement Tuesday

(Updates after Canadian data)

By Claire Sibonney

TORONTO, July 18 (Reuters) - The Canadian dollar slipped against its U.S. counterpart on Monday as riskier assets succumbed to fears of a sovereign debt default in Europe and the United States.

European bank stress test results last Friday did little to calm fears that the euro zone crisis is getting worse, sending the euro, stocks and bonds of highly indebted European countries down, while safe-haven gold rallied to record highs.

“(The Canadian dollar) softened off a fair bit. Most things are working against it,” said Camilla Sutton, chief currency strategist at Scotia Capital.

Investors shifted their attention to Thursday’s emergency meeting of EU leaders, when a second bailout package for Greece will be under discussion, as well as the looming Aug. 2 deadline in the U.S. debt ceiling negotiations.

The price of oil, a key Canadian commodity, fell on the mounting worries on either side of the Atlantic and on the possibility of another emergency stock release from the International Energy Agency (IEA).

At 9:13 a.m. (1313 GMT), the currency stood at C$0.9590 to the U.S. dollar, or $1.0428, down from Friday’s close at C$0.9543 to the U.S. dollar, or $1.0479.

Sutton said the day’s range for the Canadian dollar should hold between C$0.9550-C$0.9650.

Near term, she said the biggest risk on the table for the Canadian dollar is the Bank of Canada’s interest rate decision on Tuesday, a day before the quarterly Monetary Policy Report is released.

While a rate increase is not expected on Tuesday, the tone of the statement will give the market indications of the central bank’s new forecasts.

“Really the data in Canada has been pretty good since the May 31 meeting, we’ve had above expectation inflation, above expectation GDP and ongoing gains in employment, it’s going to be a challenge for them to sound too dovish,” said Sutton.

Canadian government bond prices were higher across the curve, tracking the direction in U.S. Treasuries.

Data on Monday showed foreigners more than doubled their investment in Canadian bonds in May from April, helping boost overall securities purchases to their highest level in a year.

The two-year bond rose 3 Canadian cents to yield 1.399 percent, while the 10-year bond was up 3 Canadian cents to yield 2.877 percent. (Reporting by Claire Sibonney; Editing by Theodore d‘Afflisio)

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