July 29, 2009 / 8:56 PM / 11 years ago

CANADA FX DEBT-C$ gets slapped by sharp slide in oil prices

 * Falls to lowest close since July 22
 * Lower oil prices latest drag on C$
 * Bond prices rally across the curve
 By Frank Pingue
 TORONTO, July 29 (Reuters) - Canada's currency fell to its
lowest close versus the U.S. dollar in a week on Wednesday as
prices for oil, a key export, dropped sharply and sapped
investors' appetite for risk.
 The slide in the Canadian dollar pulled it further from the
near 10-month high it hit on Tuesday, yet the selloff lacked
conviction and did not cause concern among market experts.
 "A middle of the pack performance for the Canadian dollar
today, which could almost be seen as impressive given the
relatively sharp slide in commodity prices," said Jack Spitz,
managing director of foreign exchange at National Bank
Financial. "Generally speaking, the flow has been risk averse
pretty much all day."
 Helping to trigger the slide in the currency were oil
prices that dropped nearly 6 percent, the biggest one-day slide
since April, after data showed a surge in U.S. crude
inventories. [ID:nSP480296]
 Also prompting an unwinding of Canadian dollar gains was an
unexpectedly weak U.S. durable goods report, which reignited
the greenback's appeal as a safe haven. The data showed weak
demand for new civilian aircraft pulled orders for costly
durable goods down in June. [ID:nN29173590]
 The Canadian dollar closed at C$1.0907 to the U.S. dollar,
or 91.68 U.S. cents, down from 1.0831 to the U.S. dollar, or
92.33 U.S. cents, at Tuesday's close.
 Spitz said the Canadian dollar is not likely to mirror the
sharp retracement it suffered in June since more optimism has
been built into investor sentiment, along with better economics
and last week's rosier outlook from the Bank of Canada.
 "Overall, the fundamentals for Canada tend to be better
when compared to its G8 counterparts and as a result we see the
Canadian dollar ultimately as a buy," Spitz said. "I don't
think we are in store for a huge correction lower."
 In fact, Spitz said the Canadian dollar will strengthen
over time if it can manage to keep from falling through the
C$1.1250 level, or 88.88 U.S. cents.
 Canadian bond prices, with no domestic economic data to
consider until later in the week, ended higher across the curve
as investors fled riskier equities for more secure government
 The Toronto Stock Exchange's S&P/TSX composite index
.GSPTSE fell 1 percent on Wednesday as the drop in oil prices
fed fears of a weak economic recovery.
 Canadian economic data on Thursday could have a bigger
impact on the market. June producer price data is expected to
show a rise of 0.3 percent, while raw materials prices for June
are expected to rise 3.0 percent.
 The two-year Canada bond moved 9 Canadian cents higher to
C$99.08 to yield 1.449 percent, while the 10-year bond climbed
23 Canadian cents to C$101.80 to yield 3.531 percent.
 The 30-year bond ended up 5 Canadian cents at C$115.75 to
yield 4.051 percent. In the United States, the 30-year Treasury
yielded 4.514 percent.
 Canadian bonds outperformed U.S. Treasuries across most of
the curve. The Canadian 10-year bond was about 14 basis points
below the U.S. 30-year yield, compared with about 12.7 basis
points below on Tuesday.
 (Editing by Peter Galloway)

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