October 4, 2011 / 1:02 PM / in 6 years

CANADA FX DEBT-C$ weakens to fresh 2011 low amid risk aversion

 * C$1.0545 vs U.S. dollar, or 94.83 U.S cents
 * Greek default fears fuel banking crisis
 * Bond prices higher across the curve
 By Andrea Hopkins
 TORONTO, Oct 4 (Reuters) - The Canadian dollar hit a fresh
2011 low against its U.S. counterpart on Tuesday as global
markets braced against the growing prospect of a Greek default
and potential European banking crisis.
 A fresh sell-off in risky assets, including stock markets
and commodity-linked currencies like the Canadian dollar, began
after euro zone finance ministers said they were reviewing the
size of private sector involvement in a second bailout package
for Greece, a move that could hasten a default. [MKTS/GLOB]
 World stocks hit a fresh 15-month low and the euro fell
across the board as investors chose the relative safety and
liquidity of the U.S. dollar. The risk aversion pushed the
Canadian dollar to its lowest point since Sept. 1, 2010.
 Still, traders said Canada's dollar has outperformed many
rivals in recent weeks and still looks relatively strong,
likely benefiting from Canada's decent economy and strong
banking system.
 "Globally, it just looks like such a meltdown and shunning
of risk that Canada should probably be weaker and is doing
quite well," said Steve Butler, director of foreign exchange
trading at Scotia Capital.
 "With complete risk aversion you can't expect to be
gaining, but we are less worse than a lot of others, which
isn't good English, but pretty much sums it up."
 At 8:50 a.m. (1250 GMT), the Canadian dollar CAD=D3 stood
at C$1.0545 to the U.S. dollar, or 94.83 U.S. cents, down from
Monday's North American session close at C$1.0511 to the U.S.
dollar, or 95.14 U.S. cents.
 Butler said the Canadian dollar could weaken as far as
C$1.06 with Wall Street braced for a lower open, but may also
regain some strength later in the session and climb back
towards support at C$1.0460-C$1.0480.
 The currency has been hitting new 2011 lows almost daily
since it sank through parity to the U.S. dollar in September
and North American stock markets entered bear market
 The Canadian dollar has lost more than 6 percent in the
last month, which Butler said is a relatively good performance
next to the 11 percent losses sustained by the Australian, New
Zealand or Mexican currencies in the same time period.
 "Things don't appear to be quite as bad in Canada as
elsewhere, we've got a fairly solid foundation in terms of how
the Bank (of Canada) has handled things and how the banking
system is, and we've still got, although the commodities are
softer than they were, we've still got a reasonably decent
economic situation going for us," Butler said.
 U.S. stock index futures fell sharply ahead of the market
open, with the S&P 500 set to enter a bear market as European
officials considered making banks take bigger losses on Greek
debt and fears of contagion grew.
The prospect of private creditors taking a bigger writedown
on their holdings of Greek debt than agreed in July added to
unease about an already fragile European banking sector.
 Bond prices were higher across the curve. The two-year
Canadian government bond CA2YT=RR was up 1 Canadian cent to
yield 0.834 percent, while the 10-year bond CA10YT=RR gained
20 Canadian cents to yield 2.542 percent.
 (Editing by Chizu Nomiyama, Editing by Chizu Nomiyama)

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