CANADA FX DEBT-C$ weakens to 2-month low as rate hike less imminent

Thu Jan 24, 2013 8:43am EST

* C$ at C$1.0019 to US$, or $0.9981
    * Rate hike delay, risk aversion hurts currency

    By Alastair Sharp
    TORONTO, Jan 24 (Reuters) - The Canadian dollar weakened to
a two-month low on Thursday, sticking below equal value with its
U.S. counterpart, a day after the Bank of Canada said an
interest rate hike was less imminent.
    The currency plunged nearly three quarters of a cent on
Wednesday after the country's central bank said excess capacity
in the economy, soft inflation and stabilizing household debt
had combined to push any rate increase further away than
previously thought. 
    But Adam Cole, Royal Bank of Canada's London-based global
head of foreign exchange strategy, said the continued weakness
was also related to a feeling of global economic malaise.
    "The rally in dollar/Canada is as much about the markets
being slightly negative for risk today as it is about Canada's
domestic story," he said.
    At 8:14 a.m. (1314 GMT) the Canadian dollar was
trading at C$1.0019 to the greenback, or $0.9981, compared with
C$0.9990, or $1.0010, at Wednesday's North American close.
    The currency at one point hit C$1.0025, its weakest since
Nov. 16.  
    The Australian dollar, another currency generally seen as a
proxy for risk appetite, pared its Wednesday gains against the
Canadian dollar.
    Cole said that the Canadian dollar would likely soon bounce
back above U.S. dollar parity again as risks abate in the euro
zone and China shows further signs of improving growth. 
    Investors will also closely follow the progress of U.S.
politicians as they negotiate deals on spending cuts and debt
expansion in coming months, he said.
    The currency would likely trade between C$0.9900 and the
mid-November high of C$1.0060 to the U.S. dollar in coming days,
Cole said.
    The price of the two-year bond was up 3 Canadian
cents to yield 1.111 percent, while the benchmark 10-year bond
 rose 21 Canadian cents to yield 1.854 percent.
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