CANADA FX DEBT-C$ slides to 10-week low as rate hike pushed back

Thu Jan 24, 2013 4:41pm EST

* C$ at C$1.0029 to US$, or $0.9971
    * C$ at weakest level against euro since Feb. 27, 2012
    * Rate hike delay, risk aversion hurts currency

    By Solarina Ho
    TORONTO, Jan 24 (Reuters) - The Canadian dollar softened to
its weakest level in 10 weeks against the U.S. dollar on
Thursday, a day after the Bank of Canada said an interest rate
hike was less imminent.
    The currency has plunged more than 1 percent since 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 it had expected.
 
    "Canada will still wear the Bank of Canada comment for a
little bit. On the client side, there seems to be a feeling that
it may not last too long. We have often seen it retrench back to
the C$0.98-C$0.99 level," said Don Mikolich, executive director,
foreign exchange sales, at CIBC World Markets. 
    "It's had such a good run and we'll have another good run
again. It's seeing some profit-taking and also some willingness
to diversify out into dollars and some of the Commonwealth
currencies."
     The Canadian dollar closed the North American
trading session at C$1.0029 to the greenback, or $0.9971,
compared with C$0.9990, or $1.0010, at Wednesday's North
American close.
     The currency at one point hit C$1.0036, its weakest level
since Nov. 16.  
    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.
    The Canadian dollar underperformed a number of key
currencies, and against the euro it touched its
weakest level since Feb. 27, 2012.
    Cole said the Canadian dollar likely would 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.
    Canadian inflation figures due on Friday will be the next
economic data in focus. 
    "That will be another piece of evidence as to how things are
unfolding. But with growth being marked down by the Bank of
Canada and CPI seen as being fairly well behaved for a while, it
would seem like rate hikes will be off in the horizon," Mikolich
said.
    The price of the two-year bond rose half a
Canadian cent to yield 1.124 percent, while the benchmark
10-year bond retreated 14 Canadian cents to yield
1.893 percent.
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