CANADA FX DEBT-C$ weakens after Greek deal hits snag

Fri Feb 10, 2012 10:53am EST

* C$ at C$1.0017 to US$, or 99.83 U.S. cents

* Greek debt deal stalls

* Canada trade surplus helps currency pare losses

* Bond prices higher

By Jon Cook

TORONTO, Feb 10 (Reuters) - The Canadian dollar slumped on Friday against its U.S. counterpart after a bailout deal for Greece met with fresh opposition, but the currency's slide was tempered by data that showed Canada's trade surplus unexpectedly rose to a three-year high in December.

Overnight the Canadian dollar had fallen below parity with the greenback for the first time in more than a week after the leader of a far-right party in Greece's coalition government said he could not back a recently negotiated debt bailout agreement, reigniting worries about a chaotic default.

Athens faces a deadline next week to have a deal in place to secure a 130 billion euro ($172.95 billion) rescue package from the European Union to finance massive bond redemptions coming due in March.

The news knocked the euro from its two-month high on Thursday against the U.S. dollar.

Canada's currency has largely traded in step with the euro for much of the year, rising above the one-to-one level with the U.S. dollar. But the increased uncertainty over Greece had investors selling riskier currencies and buying the U.S. dollar on Friday.

"The news isn't coming out as expected, so rather than risk some catastrophic news, take some profit on positions," said Michael O'Neill, vice-president of foreign exchange trading at RJOFX Canada.

At 10:50 a.m. (1550 GMT), the Canadian dollar stood at C$1.0017 to the U.S. dollar, or 99.83 U.S. cents, down from Thursday's close at C$0.9956, or $1.0044.

Early losses were pared after a Statistics Canada report showed Canada's monthly trade surplus unexpectedly rose to a three-year high of C$2.7 billion in December.

The currency had fallen as low as C$1.0040, or 99.60 U.S. cents, earlier in the session. O'Neill said it would likely trade between that level and a high of C$0.9980 on Friday.

"If it goes below that then we're back into we love everything," he said.

On Thursday, optimism over a Greek debt deal and strong U.S. jobless numbers led investors to turn their backs on the safe-haven appeal of bonds, pushing some yields to year-to-date highs. The 10-year yield touched a 2012 peak of 2.135 and the 30-year yield reached a high of 2.708 percent.

On Friday, bond prices snapped back across the curve with the two-year bond climbing three Canadian cents to yield 1.082 percent. The 10-year bond was up 34 Canadian cents to yield 2.053 percent.

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