June 24, 2010 / 9:05 PM / 10 years ago

CANADA FX DEBT-C$ hits two-week low on way to 4th down day

   * C$ ends at 95.81 U.S. cents, falls to two-week low
 * Bond prices mixed, straddling unchanged mark
 * Yields on overnight index swaps drop
 (Updates to close)
 By Ka Yan Ng
 TORONTO, June 24 (Reuters) - The Canadian dollar weakened a
fourth consecutive session against the U.S. currency on
Thursday, pressured by a global retreat from riskier assets and
a rethink on the outlook for the global economy.
 The currency finished at C$1.0437 to the U.S. dollar, or
95.81 U.S. cents, down from Wednesday's finish at C$1.0384 to
the U.S. dollar, or 96.30 U.S. cents.
 It touched a two-week low earlier in the session, hitting
C$1.0470 to the U.S. dollar, or 95.51 U.S. cents.
 "Canada is still going to look vulnerable for the next few
days," said Michael O'Neill, managing director at Knightsbridge
Foreign Exchange, pointing to month- and quarter-end flows.
 A subdued assessment of the U.S. economy by the Federal
Reserve continued to weigh on world stocks and oil prices,
while a recent wave of soft economic reports helped trigger a
steep drop in the Canadian dollar this week.
 It appears that the U.S. central bank will hold its key
interest rate near zero for "an extended period," which could
have implications on how aggressive the Bank of Canada can be
with its own rate hike program, which began this month.
 Yields on overnight index swaps, which trade based on
expectations for the central bank's key policy rate, now point
to a 63.26 percent chance of a 25 basis point hike on July 20.
That is down from 80 percent earlier this week. BOCWATCH
 "The backdrop still remains extremely dicey," said David
Watt, senior currency strategist at RBC Capital Markets.
 "Central banks are starting to ... express some very
notable concern about the situation, and that is getting a lot
of people rethinking rate profiles for central banks."
 Market players are also monitoring developments in the
run-up to two international summits in Canada this week, with
leaders of the Group of Eight and Group of 20 nations coming
together to discuss priorities for a world emerging from
recession. [ID:nN18322198]
 Canadian Finance Minister Jim Flaherty said on Thursday
that a key issue for the G20 would be striking the right
balance between growth and fiscal consolidation.
 With no major economic data to speak of, Canadian
government bond prices were mixed with moves straddling
unchanged and lacking conviction.
 Weak stock markets and a paring back of rate hike
expectations helped feed the short end of the curve, as
investors favored the relative safety of government debt.
 The two-year government bond CA2YT=RR was up 5 Canadian
cents to yield 1.584 percent. while the 10-year bond
CA10YT=RR dipped 5 Canadian cents to yield 3.239 percent.
 Canadian bonds outperformed U.S. issues across the curve.
The Canadian 10-year bond yield was 10.5 basis points above its
U.S. counterpart, compared with 10.8 basis points in the
previous session.
 (Reporting by Ka Yan Ng; editing by Rob Wilson )

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