CANADA FX DEBT-C$ weaker as Spain, Italy cause jitters

Mon Feb 4, 2013 4:44pm EST

* C$ at C$0.9986 vs US$, or $1.0014
    * Spain political scandal, tight Italy election weigh
    * Bond prices higher across the curve
    * Australian central bank rate decision due overnight

    By Alastair Sharp
    TORONTO, Feb 4 (Reuters) - The Canadian dollar ended weaker
on Monday, hurt by a growing Spanish political crisis that
weighed on that country's borrowing costs and hurt the broader
appetite for riskier assets.
    Adding to investor unease about the euro zone, Italian polls
showed former prime minister Silvio Berlusconi regaining ground
ahead of elections this month. The worries offset the positive
afterglow from decent North American data late last week.
    The Canadian dollar ended trade at C$0.9986 to the
U.S. dollar, or $1.0014, weaker than its Friday finish at      
C$0.9973, or $1.0027. The Canadian dollar had been modestly
stronger in morning trade.
    "The turnaround came. The real driver today was the growing
political scandal in Spain driving up the cost of Spanish
borrowing and that's ignited fears about a renewed European
crisis," said Adam Button, currency analyst at ForexLive in
Montreal.
    Spain's ruling party is embroiled in a corruption scandal
that threatens the prime minister's credibility as he seeks to
battle economic crisis. 
    Button said the Canadian currency would likely trade in a
tight range between equal value with the U.S. dollar and C$0.99
to the greenback this week, but could break out on any surprises
from Australia's central bank overnight or Canadian jobs data
due on Friday. 
    "Canada's central banking cousin, the Reserve Bank of
Australia, decides on interest rates (overnight). A lot of times
their comments about China can set the tone in markets and spill
over into the Canadian dollar," he said. 
    On Friday, data showed U.S. nonfarm payrolls grew modestly
in January, while gains in the prior two months were bigger than
initially reported. 
    That data helped bring the Canadian dollar back to around
parity, a week after the Bank of Canada took a more dovish
stance on interest rates that surprised markets and sent the
currency down sharply.
    Canadian housing starts and trade balance data will also be
released on Friday. 
    Canadian government bond prices were higher across the
curve, with the two-year Canadian government bond 
rising 7 Canadian cents to yield 1.158 percent and the benchmark
10-year bond jumping 46 Canadian cents to yield
1.990 percent.
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