CANADA FX DEBT-C$ weaker on Europe, growth fears; eye on BoC

Mon Jun 4, 2012 1:24pm EDT

* C$ at $1.0428 vs US$, or 95.90 U.S. cents
    * Hits six-month low overnight
    * Traders eye upcoming ECB, BoC policy meetings
    * Bond prices mostly lower

    By Allison Martell	
    TORONTO, June 4 (Reuters) - Canada's dollar weakened against
its U.S. counterpart on Monday and touched a six-month low, with
investors nervous about Europe's debt crisis and the outcome of
the Bank of Canada's Tuesday interest rate announcement.	
    Canada's currency, like its commodity-linked peers, has
slumped in recent weeks on fears about the euro zone's problems
and signs of weaker global growth.	
    Many think the recent news will spur Canada's central bank
to signal it is more reluctant to raise interest rates than it
was seven weeks ago. The Bank of Canada's scheduled policy
announcement is on Tuesday. 	
    "The market's very nervous about the Bank of Canada
tomorrow," said Steve Butler, director of foreign exchange
trading at Scotiabank.	
    "Last time they came out and they surprised everybody with
some hawkish rhetoric, and I think the market's very concerned
that tomorrow morning we may see the exact opposite, and the
Bank may have to reverse their stance."     	
    Butler said given the situation in Europe, as well as
concerns about a slowdown in the United States and Asia, the
central bank may have little choice but to backpedal.	
    The prospect of higher interest rates tends to help
currencies strengthen by attracting international currency
flows. The Bank of Canada's main policy rate has been at 1
percent since September 2010.	
    Investors are also waiting to see if policy meetings by the
European Central Bank (ECB) and the Bank of England this week
will produce any sign that another wave of easing is likely
given the weaker-than-expected economic data. 	
    At 12:45 p.m. (1645 GMT), the Canadian dollar was at
C$1.0428, versus the U.S. dollar, or 95.90 U.S. cents, down from
Friday's close at C$1.0394 versus the greenback, or 96.21 U.S.
cents.	
    The currency at one point hit C$1.0446, its weakest level
since late November.	
    The Canadian dollar is likely to trade in a range of
C$1.0350 to C$1.0450 until events later in the week provide
further clarity, said Shaun Osborne, chief currency strategist
at TD Securities.	
    On Thursday, U.S. Federal Reserve Chairman Ben Bernanke
testifies before a congressional committee about the U.S.
economy, which could offer more clues about possible policy
shifts.	
    Canadian government bond yields were mostly higher on Monday
after hitting record lows at the long end of the curve on
Friday.	
    Canada's benchmark 10-year bond fell 40 Canadian
cents to yield 1.674 percent, after hitting a record low of
1.615 percent at the end of last week. The two-year bond
 dropped 12 Canadian cents to yield 0.937 percent.
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