* C$ finishes at 80.74 U.S. cents
* Bank, economy concerns weigh on investor sentiment
* Bonds higher across curve as equities slide (Adds details, quote)
By Jennifer Kwan
TORONTO, April 20 (Reuters) - The Canadian dollar touched its lowest level against the U.S. dollar in a week on Monday as investors flocked to the greenback due to fresh worries about the U.S. banking sector and ahead of a Bank of Canada interest rate announcement on Tuesday.
The greenback rallied broadly and North American equity markets slid after a big increase in reserves for troubled loans overshadowed better-than-expected quarterly results from Bank of America (BAC.N).
The bank also said it expects the credit situation to worsen, helping to send its stock sharply lower. [ID:nSP442805]
“The return of risk aversion has sparked a selloff in most currencies against the greenback, and commodities — notably oil prices — are lower,” said Sal Guatieri, senior economist at BMO Capital Markets.
Equity markets have rallied over the past six weeks on optimism the worst of the economic crisis may be over, and as quarterly results from some U.S. banks, most recently, Citigroup (C.N) and JP Morgan (JPM.N), came in in better than foreseen.
“A lot of it goes back to the risk aversion theme that’s been the market focus for the last few months,” said George Davis, chief technical strategist at RBC Capital Markets.
The Canadian dollar finished at C$1.2385 to the U.S. dollar, or 80.74 U.S. cents, down from C$1.2150 to the U.S. dollar, or 82.30 U.S. cents, at Friday’s close.
Earlier, it hit C$1.2383 to the U.S. dollar, or 80.76 U.S. cents, its lowest level since April 9.
Also weighing on the Canadian currency was the price of oil CLc1, a key Canadian export, which tumbled more than 8 percent to below $46 a barrel on growing caution about the pace of economic recovery and the impact of that on oil demand. [ID:nSYD428032]
The retreat in the Canadian dollar comes ahead of the Bank of Canada’s scheduled interest rate announcement on Tuesday morning, when it is expected to leave its overnight rate steady at 0.50 percent. [ID:nN16520541]
Arguably more watched will be the central bank’s Monetary Policy Report, due April 23, which is expected to lay out a framework for nonstandard policy measures — often referred to as quantitative easing — to stimulate the economy.
“Given what’s happened on the equity side of the equation I think it’s encouraged some of the shorter-term players to take some profits on their short dollar/Canada positions that were built up last week, just because we do have a little bit more uncertainty coming up,” Davis said.
“I get the sense given the magnitude of the move we’ve seen we did see some profit-taking add to the downward pressure on the Canadian dollar.”
Canadian bond prices were higher across the curve alongside the bigger U.S. Treasury market as money flowing out of equity markets as investors looked for more secure home in the bond market. [ID:nN20415892]
“People are shifting their money out of equities and looking for a safer place, and that means government bonds,” Guatieri said.
The two-year Canada bond was up 13 Canadian cents at C$100.30 to yield 1.105 percent, while the 10-year bond rose C$1.20 to C$107.50 to yield 2.888 percent.
The 30-year bond climbed C$1.95 to C$123.45 to yield 3.658 percent. In the United States, the 30-year Treasury yielded 3.6918 percent.
Canadian bonds mostly underperformed their U.S. counterparts across the curve, with the 30-year bond yield 3.40 basis points below its U.S. counterpart, compared with about 5.00 basis points below on Friday. (Reporting by Jennifer Kwan; editing by Peter Galloway)