July 28, 2010 / 7:18 PM / 10 years ago

CANADA FX DEBT-C$ extends decline after tepid Fed outlook

 * C$ falls to 96.32  U.S. cents
 * Bonds prices rise across curve
 * Fed Beige Book indicates U.S. economy not robust
 (Updates to after Fed Beige Book release)
 By Claire Sibonney
 TORONTO, July 28 (Reuters) - The Canadian currency fell
against the U.S. dollar on Wednesday, extending its decline
after the Federal Reserve said some U.S. districts reported a
slowing economy, signaling persistent headwinds for the global
recovery and, in turn, riskier assets.
 The Fed's latest Beige Book reported overall U.S. economic
activity is still increasing but not robustly and in a few
areas has lost steam. It pointed to sluggish housing markets
and weakening sales of costly items like new cars.
 "The Beige Book is not flagging a double-dip recession but
it's also not painting a very flattering picture of the
economy," said Sal Guatieri, senior economist at BMO Capital
 "Unfortunately, we're not seeing any bounce in home sales
even three months after the tax credit expired, we're not
seeing much improvement in labor markets and ... still seeing
tight credit standards and declining loans and the
manufacturing sector, which has been a consistent bright spot
in the U.S. economy," he said.
 Before the report was released, the Canadian dollar had
already given back gains from an earlier rally, in line with
declining equity markets, as conflicting U.S. reports showed
improved corporate earnings and falling orders for the most
expensive manufactured goods.
  As well, oil slipped towards $76 a barrel after economic
and industry data fueled doubts over the pace of recovery in
energy demand, which also weighed on the commodity-linked
currency. [O/R] [MET/L]
 At 2:52 p.m. (1852 GMT), the currency CAD=D4 was at
C$1.0382 to the U.S. dollar, or 96.32 U.S. cents, down from
Tuesday's finish at C$1.0362 to the U.S. dollar, or 96.51 U.S.
 "We are seeing the U.S. Treasury market rally a bit, so
some money is coming out of equities because of growth concerns
or double-dip fears, and if it's going into Treasuries, it's
supporting the U.S. dollar, but consequently weighing on the
Canadian dollar," said Guatieri.
 Canadian bond prices edged up across the curve, following
U.S. issues, which were further supported after a $37 billion
auction of five-year notes met with healthy demand, with
investors shrugging off low yields and high prices to bid
strongly. [US/]
  The Canadian two-year bond CA2YT=RR was up 8 Canadian
cents to yield 1.601 percent, while the 5-year bond CA5YT=RR
added 17 Canadian cents to yield 2.444 and the 10-year bond
CA10YT=RR gained 33 Canadian cents to yield 3.233 percent.
 (Editing by Rob Wilson)

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