CANADA FX DEBT-Canada dollar nears 2-week low vs US$ on Europe

Tue Jul 24, 2012 2:59pm EDT

* C$ lower at C$1.0219 vs US$, or 97.86 U.S. cents
    * Retail sales weaker than expected; ex-autos stronger
    * Global stocks lower on worries about Spain, Greece
    * Bond prices mostly higher across the curve

    By Jennifer Kwan
    TORONTO, July 24 (Reuters) - The Canadian dollar sank to a
near two-week low against its U.S. counterpart on Tuesday as
investors focused on soaring Spanish bond yields and uncertainty
around Greece's membership in the euro zone.
    Spanish yields climbed above 7.6 percent on its 10-year bond
, reflecting a growing belief that the country will
need a bailout that the euro zone can barely afford.
    Meantime, EU officials said Greece had little hope of
meeting the terms of its bailout, casting fresh doubt on its
future in the euro zone. 
    "I would say Spain is really what matters because Greece is
relatively small. It's mainly Spain because it has a lot of ties
to other countries. In terms of size, it's the fourth-biggest
economy in the euro area," said Charles St-Arnaud, economist and
currency strategist at Nomura in New York.
    "Any signs it could leave or need a bailout is more
important."  
    At around 2:45 p.m. (1845 GMT), the Canadian dollar 
was at C$1.0219 versus its U.S. counterpart, or 97.86 U.S.
cents. It hit a low of C$1.0226, its weakest since July 12. On
Monday, the currency finished at C$1.0168 to the greenback, or
98.35 U.S. cents.
    Worries about the instability in the euro zone overshadowed
a domestic retail sales report with some bright spots. Canadian
retail sales rose by a weaker-than-expected 0.3 percent in May,
but a healthy jump in sales volume and heavy shopping for food,
beverages and clothing ignited hopes that consumers would help
keep the economy out of the doldrums. 
    "It was a decent number for Canada but in the grand scheme
of things it's going to get lost in translation," John Curran,
senior vice president at CanadianForex, said of the retail sales
data.
    "It's a positive number. But any good news that stems from
that will eventually be negated by the European situation."
    
    ALREADY WEAKER
    The currency had already been pressured earlier in the
session by data that showed the private sector across the whole
17-nation euro area shrank for a sixth straight month in July,
mainly due to weakness in manufacturing, putting the region on
track to fall back into recession. 
    The slowdown in German industrial activity was the biggest
surprise for market analysts, contracting in July at its fastest
pace in three years. 
    The European situation also overshadowed data that showed
China's manufacturing output in July grew at its fastest pace in
nine months, easing fears of a sharp slowdown in the world's No.
2 economy. 
    "It's a bit of good news after some disappointing numbers
out of China but one number doesn't a trend make, so I think the
market is more clearly focused on Europe at this point and
concerns over spreads and everything else that's going on
there," said Matt Perrier, director of foreign exchange sales at
BMO Capital Markets.
    Canadian bond prices were mostly higher with the benchmark
10-year bond up 6 Canadian cents to yield 1.577
percent, while the 30-year bond was up 11 Canadian
cents at 2.201 percent.
FILED UNDER: