Reuters: US Dollar Report: CANADA FX DEBT-C$ dips vs US$, rallies to all-time high vs euro

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CANADA FX DEBT-C$ dips vs US$, rallies to all-time high vs euro Jul 23rd 2012, 19:11 Mon Jul 23, 2012 3:11pm EDT * C$ hits session low of C$1.0205 vs US$, or 97.99 U.S. cents * C$ climbs to record high versus euro * Bond prices advance across the curve By Claire Sibonney TORONTO, July 23 (Reuters) - The Canadian dollar eased to a more than one-week low against its U.S. counterpart but climbed to an all-time high versus the euro on Monday as investors fled riskier assets on fears that Spain will not be able to avoid a costly sovereign bailout. Spanish bonds yields soared to their highest levels since the creation of the euro, despite euro zone finance ministers approving on Friday of terms for a loan of up to 100 billion euros for Madrid to recapitalize its banks. Analysts said this was the prime driver of the euro's fall. The euro hit a two-year low against the U.S. dollar and a record trough versus Canada's currency at C$1.2277, or 81.45 euro cents. "It just highlights what's going on with markets, which is the euro is notably weak and most other currencies are reacting to that," said Camilla Sutton, chief currency strategist at Scotiabank. Murcia looked on course to become the second Spanish region to request financial assistance from the government, after Valencia, with media reports suggesting six regions could seek aid. "Euro/CAD still looks attractive to sell because the problems in the euro zone are much more deep-seated and structural and symptomatic about broader uncertainties within the whole ... single currency area," said Jeremy Stretch, head of currency strategy at CIBC in London. Against the greenback, the Canadian dollar slipped to a session low of C$1.0205, 97.99 U.S. cents, its softest level since July 13, tracking a selloff in global equities and oil prices in the absence of any major economic data. Looking ahead to Tuesday, markets will be watching Canadian retail sales data for May and HSBC's Chinese manufacturing figures for July for further direction in Canada's resource-linked currency. The Canadian dollar was outperforming other commodity-linked currencies such as the Australian and New Zealand dollars on Monday because of their closer ties to China's economy, as investors braced for possible disappointment ahead of Tuesday's HSBC PMI flash report. At 2:48 p.m. (1848 GMT), Canada's currency was at C$1.0172 versus its U.S. counterpart, or 98.31 U.S. cents, down from Friday's North American session close of C$1.0127 against the U.S. dollar, or 98.75 U.S. cents. News that state-controlled CNOOC Ltd launched China's richest foreign takeover bid yet to buy Canadian oil producer Nexen Inc for $15.1 billion was generally supportive of the Canadian currency, even though the deal was priced in U.S. dollars. "I think the positive for CAD comes when Canadian-based shareholders receive the U.S. dollars and transfer it back in," said Scotiabank's Sutton. "The other ... positive for CAD comes on the general psychological side where the thought is that Canadian assets are attractive internationally." CIBC's Stretch pointed out other favorable drivers for the Canadian dollar, including the tightening bias of the country's central bank. Most Canadian primary dealers expect the Bank of Canada to start raising interest rates again by mid-2013 even as its struggling peers remain in easing mode. "Also the relative fiscal position looks much more attractive than elsewhere, there isn't any real political uncertainty and I think that's one of the problems that continues to afflict a number of jurisdictions is the inability of politicians to actually take decisions," added Stretch. Analysts looked to the 200- and 50-day moving averages of the U.S. dollar versus Canada's for significant support and resistance at C$1.0108 and C$1.0222 respectively. Canadian bond prices edged higher across the curve, outperforming U.S. Treasuries across most of the curve. The two-year government bond rose 5 Canadian cents to yield 0.931, while the benchmark 10-year bond CA2YT=RR gained 30 Canadian cents to yield 1.581 percent. Link this Share this Digg this Email Reprints

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