April 30, 2010 / 9:01 PM / 10 years ago

CANADA FX DEBT-C$ tumbles factory data, Greece anxiety

 * C$ ends at C$1.0158 to the US$, or 98.44 U.S. cents
 * Canada factory prices down in March
 * Bond prices higher across the curve  (Updates to close, adds quotes)
 By Jennifer Kwan
 TORONTO, April 30 (Reuters) - Canada’s dollar dropped a U.S. cent on Friday, pressured in part by domestic data that suggested inflation would remain tame and as investors shied away from risk due to anxiety over euro zone debt levels.
 A report on Friday showed the continued appreciation of the currency sent Canadian factory prices down in March from February, which could reduce the pressure off the Bank of Canada to hike rates sooner. [ID:nSCLUFE613]
 “This morning we got industrial and raw materials price indexes, and both came in below expectation,” said Camilla Sutton, currency strategist at Scotia Capital.
 “The pricing data this morning just hinted there wasn’t as much pricing pressure in the pipe as some had expected so putting some downward pressure on CPI expectations.”
 Currencies usually strengthen as interest rates rise as higher rates attract capital flows.
 Earlier, the currency fell to a low of C$1.0179 to the U.S. dollar, or 98.24 U.S. cents. The Canadian dollar CAD=D4 finished at C$1.0158 to the U.S. dollar, or 98.44 U.S. cents, down sharply from Thursday’s close at C$1.0054 to the U.S. dollar, or 99.46 U.S. cents.
 The currency was down 1.7 percent for the week, the steepest weekly drop since late January.
 Also weighing on the currency was a slide in U.S. stocks, typically a barometer of broader risk appetite.
 U.S. stocks fell on Friday to close out their worst week since January as news of a criminal probe into Goldman Sachs (GS.N) unnerved investors already anxious about the prospects for heavy banking regulation from Washington. [.N]
 Part of the broader risk aversion is tied to the anxiety around Greece’s fiscal situation, said Sutton.
 “There’s certainly a lot of risk going into the weekend, which would imply that people are covering off their outstanding positions so creating a short covering in euro and selling off some of the long Canadian positions,” said Sutton.
 The euro rallied against the U.S. dollar on Friday for a third straight day as expectations that Greece will soon receive emergency aid helped calm investors concerned how Athens will pay its huge debts. [FRX/]
 The Canadian currency’s move lower came as domestic data showed Canada’s economy grew an as-expected 0.3 percent in February, its sixth consecutive monthly increase. [ID:nN30135620]
 Canadian bond prices were slightly higher across the curve, as broader concerns about European sovereign debt levels kept investors on edge. [US/]
 “It’s the general rise in risk aversion. The concerns over Greece have been keeping Treasury yields low,” said Kam Bath, fixed income strategist at RBC Capital Markets.
 The two-year Canadian government bond CA2YT=RR was up 19 Canadian cents to C$99.29 to yield 1.896 percent, while the 10-year bond CA10YT=RR climbed 75 Canadian cents to C$98.75 to yield 3.650 percent.
 Canadian government bonds mostly outperformed U.S. issues, with the two-year yield 93 basis points above its U.S. counterpart, compared with around 95 basis points the previous session.  (Editing by Rob Wilson)                                                      

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