Reuters: US Dollar Report: CANADA FX DEBT-Europe concerns push C$ to 4-1/2-month low

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CANADA FX DEBT-Europe concerns push C$ to 4-1/2-month low May 30th 2012, 20:32 Wed May 30, 2012 4:32pm EDT * C$ briefly touches lowest since Jan. 9 * Currency ends at C$1.0292 vs US$, or 97.16 U.S. cents * Bond prices climb; 10-year, 30-year yields hit record lows By Jennifer Kwan TORONTO, May 30 (Reuters) - Canada's dollar skidded to a four-and-a-half month low against its U.S. counterpart on Wednesday, and bond yields plummeted, as worries about the euro-zone debt crisis rattled investor confidence. Canada's currency tracked moves in global markets as the euro fell to a near two-year low, while equities and commodity markets plummeted on worries about Spain's ailing banking sector and soaring borrowing costs. Spain's stock market hit a nine-year low as the country's borrowing costs rose to near the 7-percent level that had forced other euro zone nations to seek bail outs. In Greece, polls showed parties for and against a bailout were neck-and-neck, and the outcome of an election next month that may decide whether it remains in the euro was still uncertain. "Clearly attention is focused on Greece and Spain and the uncertainty regarding the potential Greek euro exit is overshadowing everything at this point," said John Clinkard, chief economist at Deutsche Bank Canada. The Canadian dollar hit a low of C$1.0312 versus the U.S. dollar, or 96.97 U.S. cents, its weakest since Jan. 9. But it trimmed losses to end the session at C$1.0292 vs US$, or 97.16 U.S. cents, still down from Tuesday's North American session close at C$1.0229 versus the U.S. dollar, or 97.76 U.S. cents. Market observers also said investors fled risk after China signaled it does not need massive fiscal stimulus to stabilize growth and calm investors fretting that the global economy may slip back into a similar crisis as in 2008-2009. "I think China downplaying again the potential for stimulus measures has also contributed to this sort of risk-off undertone for the markets, but it's really about watching the headlines and watching what's going on in Europe," said Shaun Osborne, chief currency strategist at TD Securities. Canada's currency outperformed most of its G10 currency peers, including the commodity-linked Australian and New Zealand dollar, but it underperformed the Japanese yen. Against the U.S. dollar, Osborne cautioned that the Canadian dollar could slip to the C$1.05 or C$1.06 area in the next month or two given it has weakened five big figures, from C$0.98 to C$1.03, in the last four weeks. Later in the week, the closely watched U.S. jobs report and Canadian growth numbers will provide further direction for currency traders. Following that, the broader market is expected to closely scrutinize the Bank of Canada policy statement on June 5. Rate hike speculation heated up last month after the Bank of Canada used unexpectedly hawkish language in its April 17 policy announcement, explicitly warning it may need to start raising interest rates. Traders quickly priced in the prospect of a rate hike later this year. "There are a lot of people that are starting to think that the Bank of Canada will remove its policy guidance that it added in April saying that they may increase rates," said Charles St-Arnaud, Canadian economist and currency strategist at Nomura Securities in New York. "If they remove it, obviously, that will remove some support for the Canadian dollar." The Bank of Canada will keep interest rates on hold until early 2013, as unrelenting concerns about the stability of the euro zone offset signs of a rosier outlook for the domestic economy, according to a Reuters survey released on Wednesday. Canadian government bond prices picked up across the curve with Canada's two-year bond up 11 Canadian cents to yield 1.113 percent. The benchmark 10-year bond yield touched a record 1.769 percent. The 30-year yield hit a record low of 2.319 percent. The benchmark U.S. Treasury yield fell to its lowest in at least 60 years on Wednesday as investors fled to safe-haven assets to ride out Europe's deepening financial crisis. Link this Share this Digg this Email Reprints

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